Debt Consolidation refers to taking out one loan to pay off multiple unsecured debts. The idea behind securing this new loan is to borrow money at a “lower interest rate” to pay back loans which charge a “higher interest rate”. Debt consolidation acts as a great tool to simplify the repayment process of credit card debt, student loan debt, & other types of debt which are not tied to an asset.
Benefits Of Debt Consolidation
- Eliminates the needs of multiple payments & deadlines
- Lowers down interest rates
- Reduces monthly payments
- Improves credit ratings
- Saves you from stress and anxiety
Things To Consider Before Applying For Debt Consolidation
To determine whether you should take on new debt or not, thoroughly assess your overall financial state against the lender’s criteria. Some of the factors that lenders usually take into account when reviewing a debt consolidation application are – the overall credit history of the borrower, his/her ability to pay back the loan, and the Collateral (personal assets) he/she posses.