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Debt Consolisdation

/ About Debt Consolidation

What is Debt Consolidation, and should You do it?

Using debt consolidation, you can consolidate multiple debts into a single liability and pay off those multiple debts and liabilities. You can consolidate the debts using your bank, credit card, or credit union company. Some of these companies may turn you down, so you may opt to explore private mortgage companies or lenders.

Creditors are willing to accept debt consolidation because the system increases their chances of collecting from the debtor. Many debt consolidation companies will consider your credit score before offering debt consolidation.

What are the different types of debt consolidation?

There are two types of debt consolidation loans: secured and unsecured. For a secured loan, you will need an asset, such as a car or a house, that works as collateral. On the other hand, an unsecured loan is one in which you don’t have to back with an asset. The unsecured type of loan is challenging to obtain and tends to have high-interest rates. 

How can you consolidate your debts?

 There are several ways you can consolidate your debts. The most common include; 

Debt consolidation loans

Traditional banks and peer-to-peer lenders offer debt consolidation loans as a payment plan for those who can’t manage the size of their debts.

Credit cards

You can consolidate all credit card payments into a new credit card, especially if the new card offers little or no interest for a set period. 


The acronym stands for home equity lines of credit (HELOCs), and you can use this avenue for debt consolidation.

Student loan programs

The federal government offers consolidation options for persons with student loans. It does this through direct consolidation loans through the Federal Direct Loan Program. Private loans are not part of this program

/ Why Debt Consolidation

What are the advantages and disadvantages of consolidation loans?

If you are considering consolidating your debts, you need to consider both the advantages and disadvantages of debt consolidation before you come up with a conclusion. The first advantage is that you can benefit from a single monthly payment at a lower interest rate instead of being burdened by multiple payments. If you don’t add any additional debt, you will also become debt-free sooner.  

However, you must be careful even though the interest and monthly payment may be lower on a debt consolidation loan. These longer payment schedules may mean paying more in the long run. Also, you may lose special provisions such as interest rate discounts for student loans. Mostly, people who default on consolidated school loans may find their tax refunds garnished. 

/ Pricing & Plan

When is debt consolidation a good idea?

Here are some scenarios when debt consolidation is a smart move: 

Your credit score is good enough to qualify for a Your debt payments are less than 50% of your monthly gross income.

Credit card with a 0% interest period or low-interest debt consolidation loan.

You can manage to pay the consolidation loan within five years

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Can debt consolidation help withcredit scores?

Down the road, a consolidation loan may help improve your credit score. As you keep the interest payments low, you can keep up with the payments using less money, helping boost your credit score.  

The Bottom Line

Debt consolidation can be a good idea. However, carefully evaluate the terms of the new consolidated loan to ensure you are getting a good deal and it is affordable. If you have a good credit score, getting a consolidated loan is better because you can get such a loan with low interest or at 0% interest. However, if you can’t obtain good terms, consider having a debt settlement scheme.