In its simplest sense, Debt Consolidation involves taking out one large loan, such as a home equity loan, to pay a number of smaller, usually high interest, loans. Here are some reasons to consider Debt Consolidation:
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It allows a debtor to put all debt into one loan, usually with a smaller monthly payment than he/she had with all of the separate loans/debts.
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Most of the time, the interest rate on the new loan is less than the average interest rate of the old loans/debts.
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There is a convenience and peace of mind in knowing that only one payment needs to be made to cover the multiple former debts.
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The debtor usually feels much less stress and tension than before, when he/she was trying to figure out which loans to pay during which pay period and juggling minimum payments to a variety of creditors, all with different due dates.
You should be careful when considering debt consolidation options. Typically a debt consolidation loan comes from a refinance or home equity loan. Homeowners who use home equity loans to pay off high interest credit cards are converting unsecured debts into secured debts. If you have unsecured debts, such as credit cards, it is wise to explore all your debt relief options before tapping into your home equity (particularly if your credit is not perfect). The form on this page will put you in touch with a debt specialist who can explain your debt relief options.
