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Understanding Debt Consolidation

Mar 27, 2008
Most people have heard of debt consolidation through junk mail, on television, or other forms of media. Today, with the price of goods skyrocketing to include groceries, medical bills, and even gas, consumers are trying to find solutions for better money management. Over time, bills can pile up, virtually squeezing the life out of you. Stop feeling consumed by being in this type of situation and consider getting help with debt consolidation.

Okay, so what is debt consolidation? This plan or process involves all of your debt being combined into one bill that is paid on monthly. The result is having your monthly payment reduced and/or enjoying a much lower interest rate. With debt consolidation, your money will be freed up, making your budget more workable while getting out of debt quicker.

In some cases, consumers can combine unsecured debt into one unsecured loan. In most cases, debt consolidation involves several unsecured debts into one secured loan. This secured loan has collateral. The typical collateral for this loan is a house. This is why consumers are bombarded with home equity loan offers on a regular basis.

With a collateral loan, you would benefit from a lower interest rate since the lender's risk is not very high. Because these interest rates can be substantially lower, these offers are often quite appealing.

Student loans primarily used to pay for college expenses can become burdensome over the years. These loans can be consolidated, as well, but typically the steps are different for student loans than for unsecured debt from credit cards.

For students, loans can be consolidated by working with a private lender, usually securing a lower interest rate. However, if a student has gone this route and finds down the road they need to refinance again, they would need to work with the Department of Education since refinancing a student loan is rare. In this particular situation, the loan would be locked into one interest rate, rather than go through the normal financing process.

Even so, many students find debt consolidation to be beneficial, as do consumers who want to lower monthly payments, reduce debt, and enjoy better interest. The truth is that by putting a number of debts into one loan, meaning one payment, offers peace of mind and a budget that can be followed easier. Just remember that sometimes, debt consolidation can only be done using collateral.

With research and planning, debt consolidation can positively affect the consumer's financial circumstances, but if continued debt incurs, debt consolidation will not typically improve the finances over time. If your budget gets tight, do your homework and consider debt consolidation by becoming informed for the best results.
About the Author
Are you dealing with the stress & anxiety from excessive credit card debt? Find out more about how consolidation can lower your stress and get you out of debt faster on the Debtopedia website
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