What is debt consolidation?

sarahheller By sarahheller, 14th May 2015 | Follow this author | RSS Feed | Short URL http://nut.bz/3y6e1ji5/
Posted in Wikinut>Money>Loans

Debt consolidation is a term that plenty of people have heard before, but not very many people are familiar with this type of loan. This service is very useful for people who are struggling with their debt and for those who just want to get out of debt faster.

What is debt consolidation?

Debt consolidation is a process in which a consumer takes all of their existing debts and combines them into one loan. The new loan pays off all of the old ones, and typically comes at a lower interest rate than the average of what they were paying before. In some cases, the new loan also has a longer payment term, making it possible for the consumer to pay off their debt while paying less interest and making a lower payment every month.

While this is the basic idea behind debt consolidation, it’s important to realize that every person’s financial situation is unique. For this reason, debt consolidation can be customized to meet a person’s individual needs. One of the most common things that can be adjusted is the payment term. Some people simply want to get out of debt as quickly as possible, and have the money to devote to this goal. In these cases, a debt counselor will look for a loan with as low of an interest rate as possible that will get the debt paid off as soon as possible.

In other cases, a person might need to have a lower amount of his or her salary going towards debt repayment. For this consumer, a debt counselor would look for a loan that lets the consumer spread out payments over a longer time frame. This would give the consumer a lower payment, making it possible for him or her to avoid bankruptcy or other negative consequences.

It’s also important to realize that this technique can work for people with all levels of debt. People with just a few thousand dollars can get a small consolidation loan to pay off their debt quickly. People and even businesses with hundreds of thousands of dollars of loans can use this to get their payments to a manageable level.

How does debt consolidation work?

Debt consolidation works by replacing a person's existing debt with a single loan. This loan pays off all of a person's existing debt, essentially wiping out any consumer credit cards, personal loans, and medical debt.

In order to get a debt consolidation loan, a person works with a debt counselor. This person will review each case individually, and work with the borrower to find a loan that meets their needs. The loan that is found will usually have a lower interest rate and longer payment term than the original loans. That means that the borrower will pay less every month towards his or her debt.

Tags

Credit, Credit Card Debt, Credit Cards, Debt, Debt Consolidation

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