What is the Definition of Debt Consolidation?


It is when you replace multiple loans with a single loan.Why would you want to do this? Well, there are many good reasons to undergo debt consolidation.First of all, when you consolidate your loans, you make one payment each month instead of multiple payments. If you are not good about budgeting your money, this can keep you on track.More importantly, the debt consolidation company may be able to secure better terms with each creditor in order to lower your monthly payments. They may be able to reduce your principle amount, for instance.Further, they will issue you an umbrella loan at a low interest rate. Often, people are sucked into “teaser” rates on their credit cards that balloon up to nearly 20 percent after 6 months. Your consolidated loan may be in the neighborhood of 5 to 7 percent.And, if necessary, they will spread your loans out over a longer period of time making your monthly payment significantly lower.For all of these reasons, debt consolidation is a popular avenue for people who have multiple streams of unsecured debt.However, there are things you should be aware of when pursuing such a loan. For one thing, you may have to put up the equity in your home as collateral against the loan. In this case, if you default on the loan, you may lose your house.Further, for some people, bankruptcy makes more sense than taking on a new loan. If you really can’t meet your obligations, starting over with a clean slate can be quite appealing.Still, for most people with credit problems, a debt consolidation loan can be the solution they are looking for.And that is the answer to “what is the definition of debt consolidation?”