Debt Consolidation

Features of a Debt Consolidation Loan

A debt consolidation loan is a loan in which a borrower takes out one large loan to pay off all their other loans. This is a common practice for those who are having problems keeping up with various payments on credit cards and bills. Whether you're having trouble paying your bills or simply want to consolidate all your bills into one, taking out a debt consolidation loan can help immensely.

If you have no credit problems and simply want to simplify your payments each month, you may be eligible for an unsecured debt consolidation loan, but this is rare. Most debt consolidation loans are secured, meaning the lender needs some kind of collateral, such as a house or car, before they will extend you a loan.

Because they are one of the highest interest-incurring forms of debt, credit card debt is a perfect candidate for debt consolidation, and is one of the most common reasons people choose to take out a debt consolidation loan. By consolidating, they often get a far lower interest rate than they previously had on their credit cards. Keep in mind that though debt consolidation can be a good thing, you need to make sure you are financially able to take it on. Additionally, much of the time you're taking a larger loan and may end up paying more in the long run.

Benefits of a Debt Consolidation Loan

There are a number of other benefits for borrowers looking into debt consolidation. From lower interest rates to helping you rebuild your credit, debt consolidation can help borrowers in many ways:

  • Debt consolidation can help you rebuild your credit. Through debt consolidation, you can turn bad debt into good credit by making steady payments and never being late or delinquent. By the time the consolidation loan is paid off, as long as you've been vigilant, your credit could be much better than it was before you took the loan.
  • Lower your interest rates. Debt consolidation loans, especially in reference to credit card debt, can go a long way towards reducing your interest rates.
  • Make one monthly payment. Just one. Forget about the old days of paying six different bills a month; with debt consolidation, you only have to worry about one simple payment.
  • Debt consolidation is excellent for student loans. Another sector that benefits from debt consolidation, students loans can be made far more manageable.
  • Planning and programs to help you spend less. Part of a debt consolidation loan may include some form of credit counseling or seminar, where you learn methods for controlling spending and making a responsible fiscal plan.
  • More money goes toward the principal balance. This means that you will be paying more on the actual loan and less on the interest then before.

Some companies waive late or over limit fees. This doesn't apply to all lenders, but some do offer this as an option during debt consolidation.

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