Debt Consolidation

When and why consolidate loans?

 

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Debt consolidation means getting one loan in order to pay off a number of smaller loans. Sometimes it is a very useful solution for people who have many debts from many sources.

If you have maximum 2-3 loans, you probably don't need to consolidate them. Usually you should manage to easily pay them off. However, if you have more of them, or some of your loans are taken for a far too high interest, you could consider consolidating your debt to a single loan. It could bring you two basic benefits - lower payments and more comfortable situation.

Debt consolidation can have many forms. You could change a number of unsecured loans into one unsecured loan, but usually it won't give you as many benefits as changing many loans into one secured loan. Most often, debt consolidation involves creating a new loan secured by a collateral, for example a mortgage.

The collateralization of the loan gives more security for the lender and therefore the interest rate can be much lower then the interest for the previous loans. This is the main benefit of debt consolidation.

Additionally, having one loan instead of many loans with various payment amounts, payment periods and days of payment, is much more comfortable. It saves time and gives more security for the debtor. It also enables easier control over monthly personal expenses.

People who should consider consolidating their debt are mostly those, who have many kinds of debt, including these with very high interest rates. Credit card debt is the best example of such expensive loan. Credit card debt can accumulate very fast when you lose control over it. In such cases, consolidating your debt can be really beneficial.


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