Debt consolidation involves taking out one loan to pay off multiple others. This is usually done to receive a lower interest rate. It is also done in addition if not primarily to make it easier to manage loans. Debt consolidation is just one of many ways to reduce or eliminate debt. Not everyone is in the same financial situation, just as debt consolidation isn’t for everyone either.
When looking to relieve debt, one must first assess their own financial situation. Once they do this they can begin researching and learning about what debt solution would best fit their needs. There is somewhat of a category for someone who would benefit from debt consolidation. Typically, someone in debt from a range of $8,000 to $15,000 would want to consider debt consolidation. For this to be done, one should own their own home as they will likely have to use it to take out a secured loan. A secured loan is a loan with an asset attached to it so there is less risk for the lender. If the repayment agreement is not met by the debtor there is a possibility the lender will put the debtors house, or whatever asset tied to the loan up for auction. When a home goes up for auction it is a foreclosure.
If a person only has debt on one credit card with a high interest rate, they are served better by paying off that credit card with another credit card with a lower interest rate. If this is done, one must manage payments better because as soon as a payment is missed on the new credit card account, that person could be right back where they started with a high interest rate. Sounds scary, right? Well it is. Someone could potentially dig themselves a deeper hole. However, if a person consolidates their debt with a trusted company and payments are managed properly, there is not much to worry about.
Ultimately, someone must weigh their options heavily before deciding to consolidate their debt. It can either be of great benefit, or potentially put someone in a worse position then they started in. When all is said and done, debt consolidation has its advantages, disadvantages, and risks. It all depends on how responsible the debtor is which will affect the outcome.
