How To Consolidate Debt

What is debt consolidation?

One of the most frustrating things about debt is dealing with multiple creditors. Each of them has their own interest charges, their own minimum payments and their own payment due dates. If you're already struggling to meet your monthly obligations, then the added confusion can make the problem worse. In many cases, this results in missed payments, additional late charges and, ultimately, more and more debt.

How do you break the cycle? Debt consolidation loans offer a solution that may be worth exploring.

Why Consolidate Debt?

Chances are you're wondering, "What is debt consolidation?" There are numerous ways that this system can work, and if you need debt consolidation explained, it's best to start with the basics. In essence, debt consolidation represents an arrangement between multiple creditors to merge all your debts into a single payment. You can then get a debt consolidation loan from a bank or other financial institution to pay off your creditors, or finance the debt consolidation using other assets you already own.

Debt consolidation made simple also explains why you would want to do this. In essence, it offers you a quick way to become debt-free. Consolidating debt is a better solution than declaring bankruptcy and helps your credit rating make a faster recovery.

How to Consolidate Debt

There are two ways you can consolidate debt: by getting a consolidation loan, or by restructuring assets you own to free capital to pay off the consolidated debt. Either way, you will have to work with a debt counseling service, who will negotiate a settlement amount with your creditors.

If you get a consolidation loan, here is what will happen: the lending institution will pay off the consolidated debt to your creditors, who will then disburse the funds between them as agreed. Then, you will make payments to the consolidation lender every month until you're free of debt. The advantage of this is not only that you only have to make a single payment, but also that you'll typically pay less interest.

You can also get a home equity loan or second mortgage to pay off a consolidated debt if you're a homeowner. Be careful with this strategy, though, as you risk losing your house if you're not able to make payments on the mortgage or loan for the long term.

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