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What is Debt Consolidation?

Debt is a sum of money that is owed or due by someone to some another party. Also the money to be paid back is generally higher than the money you borrowed because of some rate of interest applied on the borrowed sum.

Now what is Debt Consolidation?

In simple words Debt Consolidation is going for another loan to pay the existing loan.

Technically Debt Consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. Refinancing means replacement of an existing debt to be paid with another one. Debt consolidation is a financial strategy, merging multiple bills into a single debt that is paid off by a loan or through a management program.

  • Sometimes it is done when you are near the last date of paying your existing loan. In this case you pay the existing loan and for the new loan to be paid back you get extra time.
  • Or when a new loan scheme offers less rate of interest than your existing loan scheme, then debt consolidation is advantageous.
  • Debt consolidation is especially effective on high-interest debt such as credit cards. It should reduce your monthly payment by lowering the interest rate on your bills, making it easier to pay off the debt.






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