Often when someone is in financial trouble, a debt consolidation loan is considered. This is one way to simplify and manage a complex debt situation. In securing a debt consolidation loan, this money, often offered at a lower interest rate than you're currently paying on your debts, will be used to pay off your existing unsecured debts (credit cards, unsecured loans, medical bills etc.).
By consolidating these debts you will be simplifying your life by only having to make a single payment each month to a single lender instead of multiple payments at different times to many lenders. Frequently, a debt consolidation loan is all it will take to help someone recuperate from a moderate debt crisis. Other options for more severe situations include a debt management plan, Individual Voluntary Agreement (IVA) and in the most extreme cases, bankruptcy.
According to Experian, UK residents could save up to £15 billion in interest if they consolidate their high interest debt into a low interest debt consolidation loan, but lenders are tightening credit eligibility, so it may be harder than it used to be to obtain a debt consolidation loan. If, however, you are convinced that a debt consolidation loan is the way out of your adverse debt situation, then following are explanations of two different forms of debt consolidation loans.
Please note however, that a debt consolidation loan is not a quick-fix solution to your debt problems. You should only consider this option if you can cut high-interest debt out of the equation with a loan that significantly reduces your monthly interest payments. Unless the loan will make a large difference by enabling you to pay off credit cards or store cards, you should not consider replacing a loan with another loan. If you do decide to take out a debt consolidation loan, you need to be committed to making the payments in full and on time each month to ensure that you do not go into arrears and negatively affect your credit rating.