What is Debt Consolidation?
Debt consolidation is when a person takes a number of debts and combines them into just one. The debts that are being consolidated are generally high interest debts, with the intention to have them consolidated at a better (lower) interest rate. This not only lessens the cost of borrowing, but also adds the extra convenience of dealing with fewer bills and creditors each month.
Debt consolidation usually works best when dealing with unsecured debts like credit cads or student loans and moving them over to a secured loan. These normally charge excessive interest, whereas secured loans will normally carry the lowest rates, so moving unsecured debt over to a single secured loan means savings for the consolidator.
For those who do not have a home or own other collateral to attain a secured debt consolidation loan, there may still be some consolidation programs available, although the savings won't normally be as significant as the interest on an unsecured loan will be higher in the absence of collateral.
If you've got the ability to secure the right loan and are currently paying high-interest on multiple debts, whether they're medical bills, department store and credit cards or any other types of unsecured loans; debt consolidation is a good option to consider. Lowered interest should allow you to decrease your overall payments while paying off your debts more quickly.
Confusing Consolidation With Settlement:
Although what are often referred to as "debt consolidation" companies can decrease your burden by decreasing what you owe to your creditors, when your debts are actually reduced instead of paid off with another loan, this is actually debt settlement or debt negotiation, despite people regularly referring to them both as "consolidation".
Many settlement companies will collect a single payment from clients after enrollment to distribute to creditors. While this technically "consolidates" the payments - the actual debts themselves still remain individually - albeit reduced.
