Debt consolidation is simply the process of bringing of different debts into one. In a very natural sense, whenever you have up to 2 or 3 debts waiting for you, and you eventually get involved in a bigger debt that enables you pay off the former debt, you have done some form of debt consolidation. The simple definition here is that debt consolidation means consolidating all your numerous debts into one single debt by using the bigger and simpler debt to pay off the other debts. You can be involved in a sort of car, house and utility debts, and because of the numerous conditions and stress involved in the servicing of different debts, you now take out another debt or loan that will allow you pay all the other debts and then continue to repay the one consolidated debt.
There are a lots of situations we do these in life, and these situations are justified based on their peculiarities. In most cases, the issue of debt consolidation comes in form of loans. A lot of people take out bigger and simpler loans to pay off different loans and, then get into the repayment of the single loan. The advantage to this is that it eliminates a lot of charges that are due to these loans on individual bases. It also eliminates the stress involved in having to service different loans which might even make a lot of people forget that they are supposed to service such loans.
When you take out one loan to repay other loans, the resultant effect in most cases is that you have the interest rate you are supposed to pay reduced. Debt consolidation loans have no boundaries. A lot of people can take out unsecured loans to settle or secure another unsecured loan, while others can take out much secured loans with collaterals to settle an unsecured loan. In other cases, it involves taking out a secured loan against an asset. This might involve taking a mortgage to pay some house loans with the house being the collateral.
There are some reasons why people get into debt consolidation or take out loans to consolidate their debts. They include either to secure a lower interest rate since the interest is likely to reduce when the debts are put into one loan. Some use this to secure a fixed interest rate that they will be paying every month unlike the different interest rates that was present in the scattered numerous debts of before. The next is the convenience of servicing only one debt. This is very much hinged on comfort and avoidance of stress. Debt consolidation loans are offered by debt management companies, banks, and all other loan providers like the payday loans and car loan firms.
It will be good to also note that when you take out a debt consolidation loan, you will be paying the same amount as before. The only difference is that the term might be prolonged and you might end up paying less interest. But in most cases, if the term gets too long, it increases what you pay. Meanwhile you have to make sure you get a reduced interest rate, because if you pay more for the same thing you have been paying, then the aim might have been defeated.
This article is written by Robin Smith. He is an expert and specialist financial advisor of UK having detailed advising knowledge of debt consolidation loans and debt relief order related debt topics.