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What is debt consolidation?

Sunday, 16 April 2017
Debt consolidation is a way in which a person can carry out debt refinancing whereby one takes out a loan to pay off many other loans. Through this process, a person will acquire a lower overall interest rate to the entire debt load. It also provides the convenience of servicing a single loan.

Lending institutions offer debt consolidation loans that are secured as a second mortgage or home equity line of credit. The individual is required to put up their home as collateral and the loan is less than the equity available. The consumers enjoy the advantage of an overall lower interest rate. The loans are then spread out over a longer period. Debt consolidation allows the debtors to make a single payment to the debt management agency that then pays all creditors in turn until debts are paid off.

Debt consolidation service is important as it very easy for a person to accrue debt from several creditors. This can lead the person to get overwhelmed trying to keep track of whom to pay what amount and at what time. It thus helps one to get a handle on his finances and avoid an overwhelming debt load. Debt consolidation is a helpful tactic but it may involve extra costs thus making a bad situation even worse. A person requires an expert opinion on their case before they can take out a consolidation loan. A debtor should, however, take caution that they don’t continue to take on new debt. They should focus on getting rid of the existing debt rather than adding onto it. The creditor should also consider the fees they will pay out to the debt consolidation service as they make a decision.

After careful consideration and deliberation, if a creditor ascertains that they will go ahead and take a consolidation loan they need an acceptable credit rating and sufficient income to show that they will manage the debt consolidation loan.

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