>Debt consolidation is a loan from a financial institute that allows you to receive the money to repay off debt or your creditors all at once. This is convenient for those who have many places of debt and want to pay it off sooner to reduce the amount of interest paid out. By doing this you are eliminating all your debt sources and reducing it to one loan that you pay off monthly through payments.
Some reasons that people would choose debt consolidation over other alternative methods is that it is easier for cash budgeting with one predictable monthly payment versus a bunch of others. It allows lower payments and interest rates and reduces the risk of being late on monthly payment. It also doesn?t affect your credit rating as much as other financial alternatives do such as bankruptcy.
With every decision we make there is advantages and disadvantages. There are a few disadvantages for debt consolidation loans, some of these may require you to give some form of collateral or Lien in order to receive this loan. Collateral can be a second mortgage on your house where a lien is collateral against a smaller item like a vehicle. When this happens if unable to make payments you?re putting yourself and family at risk for losing everything. Another disadvantage is because you are getting one big loan you may still have large monthly payments to make that are hard to make. Another bad thing about debt consolidation is if you still have access to old credit cards etc. It leaves room for you to fall deeper into debt and in return making your financial situation worst in the long run.
Overall debt consolidation is a solution for those in financial trouble and who are stuck in mounds of different debt and need help trying to get out of that situation by paying off one loan instead of several. By using this means of financial help there is advantages and disadvantages but it is a solution that doesn?t affect your credit rating which in return may help you later down the road. The biggest thing as a person in financial trouble that you can do is look into your options, and come to realize that there is more than one option that you can venture down to get help. By doing this hopefully it will give you hope and a fresh start.
Source: http://www.mydebtreliefblog.com/debit-consolidation/a-glance-into-debt-consolidation/
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