What is Debt Consolidation?

Debt consolidation is taking out one loan to pay off others. This is usually done to get a lower interest rate, a fixed interest rate or for the convenience of paying only one loan. The purpose of consolidating debts is to bring together all your existing credit card, store card, personal loan, and overdraft debts into one single loan.

Some of the advantages for consolidating your debts are as follows:

• As you will be borrowing a larger amount for a longer term, the interest rate should be much lower than the rate you are paying now on each separate credit account.
  


• Shopping around for the best deal should also reduce your interest rate on your debt consolidation loan.
  


• With only one loan payment, managing your finances should be much easier than having several payments to think about.
  


• As long as you remove your credit cards from your wallet, (even better if you cut them up), you will see your level of debt gradually decrease month by month.
  


• In the case of an emergency you will no longer worry about having to use your credit card and being close to your overdraft limit.

A wide range of consolidation loans are available from your regular banks, credit unions, online banks, as well as from supermarkets or general finance firms.

Need to weigh the pros and cons? Click here.