Debt consolidation can be done in a number of ways . The basic idea is to replace some or all of your debt with a single debt.People sometimes find that debts build and multiply and soon become unmanageable. Debt consolidation is a common method used to combine debts, and to reduce both monthly repayments and the total amount of interest payable on debt. It involves combining a number of separate debt obligations into one loan. The loan into which debt is consolidated might be a new, lower interest loan, or an existing loan facility.
FOR EXAMPLE: Jim and Jenna have a home loan with a 7% p.a. interest rate. They also have a car loan at 10.5%, a credit card debt at 21% and a store card debt at 24%. They were finding simply maintaining their debts difficult, and all they could manage with the card debts was to make the minimum monthly repayments. This meant that they were really going backwards with these debts. On close examination, they found that they were actually spending more on necessities and meeting their debt obligations, than they were earning. They spoke with professional who planned their budget and looked at alternative to their current multiple debt situation.
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