Debt Consolidation: 101
There are plenty of companies advertising that they help consumers with debt consolidation, but a lot of people don’t know what this means. The truth is that this service is very useful for people who are struggling with their debt, or those who just want to get out of debt faster, but it isn’t something that a lot of people learn about in school.
Debt consolidation is a process in which a consumer takes all of their existing debts and combines them into one loan. The new loan pays off all of the old ones, and typically comes at a lower interest rate than the average of what they were paying before. In some cases, the new loan also has a longer payment term, making it possible for the consumer to pay off their debt while paying less interest and making a lower payment every month.
While this is the basic idea behind debt consolidation, it’s important to realize that every person’s financial situation is unique. For this reason, debt consolidation can be customized to meet a person’s individual needs. One of the most common things that can be adjusted is the payment term. Some people simply want to get out of debt as quickly as possible, and have the money to devote to this goal. In these cases, a debt counselor will look for a loan with as low of an interest rate as possible that will get the debt paid off as soon as possible.
In other cases, a person might need to have a lower amount of his or her salary going towards debt repayment. For this consumer, a debt counselor would look for a loan that lets the consumer spread out payments over a longer time frame. This would give the consumer a lower payment, making it possible for him or her to avoid bankruptcy or other negative consequences.
It’s also important to realize that this technique can work for people with all levels of debt. People with just a few thousand dollars can get a small consolidation loan to pay off their debt quickly. People and even businesses with hundreds of thousands of dollars of loans can use this to get their payments to a manageable level.