Consolidation Loan

What is a Debt Consolidation Loan?

If you are in need of debt relief and looking to manage your debt using a debt consolidation loan, you would likely apply to a bank or finance company for the sum of money you would need to pay off your other smaller debts. This loan with have a lower interest rate than you are currently paying, plus you have one manageable payment rather than numerous bills to pay.

But you will be paying off this debt loan for a long period of time, meaning you will not be debt-free for a long time to come. In addition, this will not reduce your debt in any way. Also, you may not be able to obtain a loan if your credit line is exhausted. The alternative to this is the home equity loan, where you would put up collateral in exchange for your loan. Essentially you are trading secured debt for unsecured debt, which is a step you should think about several times before taking.

Many experienced credit card jugglers have themselves been “debt consolidators,” at least on an informal basis, at one time or another, usually in the early stages of debt accumulation, in an effort to get debt relief.  They might pay off several balances on high-interest cards with a low-interest credit card that they may have gotten an enticing offer on. This was very common particularly before credit card rates and fees began to get out of hand, when 0% credit card offers were rampant. Unfortunately, it was also a way for them continue to amass debt. So, as they continued to accumulate more credit cards, they accrued more credit card debt. One payment again turned into many, and they no longer had one payment to manage. Then the teaser rates disappeared, and the borrower was left trying to find a better offer or a lower interest rate.

Depending on whether you have the availability of low interest credit cards, this could be an option for you. As there is little regulation imposed on the banking industry in regard to interest rates and fees charged to consumers, you may suddenly find that your credit card company has changed the terms of your agreement (which they may do at any time) and you wind up with your interest rates jacked up on a card that has a high balance.