Debt Consolidation
Candlefocus EditorIn simplest terms, debt consolidation is combining several debts into a single loan. This loan is typically used to pay off existing unsecured debts, such as existing credit card debt or medical bills, or to combine multiple payments with different due dates and payment amounts into a single payment. It often reduces both the interest rate and total amount of debt.
The usual approach to debt consolidation is to secure a loan with a lower interest rate than the current debts being paid, so that the debt can be paid in full and the loan can be repaid. Debtors may secure a loan through a traditional lender, such as a bank, or a debt-relief company.
Benefits of Debt Consolidation The primary benefit of debt consolidation is usually a lower interest rate — this lowers the cost of a debt, resulting in a lower monthly payment. Lower payments may also reduce the amount of time it takes to repay the debt. Furthermore, a debt consolidation loan may offer a fixed payment over a pre-determined period of time, which can help to establish financial stability.
Another advantage of debt consolidation is that it may provide an opportunity to create a better budget. Not only does this help a person to stay on track with repayment, it can also serve as a way to help identify lifestyle changes or other measures of fiscal responsibility to repay the debt faster.
Debt consolidation is a way to pay off existing debt with a single loan, which can ultimately help people to save money. It can also simplify the repayment process and help to improve overall credit scores by paying off debt over time rather than all at once. People facing serious debt issues should consult with a financial professional to ensure they are making the best decision before taking out a debt consolidation loan.