When individuals are mired in debt, they have a number of options available to them. Cutting back, budgeting and bankruptcy are but a few of them. Debt consolidation is another. Consolidating debt has become a pretty common way for people to decrease their debt burden and for several notable reasons. It’s a fairly easy process and it can provide fast, financial relief for the person in debt.
Debt consolidation involves grouping or centralizing ones debt and then getting a loan that will both cover that debt and offer better terms. For instance, a person who has the following debt amounts, $15,000, $1,000 and $12,000 and who is paying 20%, 16% and 9% respectively on those debts, might attempt to get a debt consolidation loan for the total amount of these debts $28,000 at 8% interest. Doing so would lower their payments and save them a considerable amount of money in interest. They would also only have one loan payment. Debt consolidation loans can take a number of forms, home equity loans are one type; others are guarantor loans and provident loans.
There are both opponents and proponents of debt consolidation. Some people champion it and encourage individuals who need it, to use it as a way to speed up the process of getting out of debt. Others oppose it, largely because they don’t believe that it’s a good idea to attempt to get out of debt using debt especially if it requires taking out bad credit loans.
In our opinion, there are many good reasons to consolidate ones debt. When a debt consolidation loan provides individuals with better terms then they are currently receiving, then it would be wise for them to take advantage of it. Better terms mean lower monthly payments and interest. The former helps to relieve much of the stress associated with being in debt, while the latter will allow an individual to get out of debt much faster then they originally would have.
Though debt consolidation requires a person to utilize a loan in order to get out of debt faster, the fact that they already have loans, kind of makes this point moot. At first glance, it would appear that an individual is taking on additional debt when they consolidate, they are in fact securing better terms for the debt that they already have. The debt consolidation loan is used to pay off their current debts. After these have been paid, an individual is left with a single loan for the same amount but with a lower interest rate. When done correctly, the new loan will offer better terms then the previous loans. This does a couple of things. One of the most important things it does is help individuals get out of debt faster then they normally would because of the new loan’s reduced interest rate.