The Basics of Debt Consolidation

If you are burdened by debt and there seems to be no end in sight to your debt woes, what you need is a bit of breathing space. Debt consolidation might be a good idea in such a situation, and chances are, some debt consolidation scheme or the other has been recommended to you. If you still need to make up your mind about whether to proceed with taking out a debt consolidation loan, this article is for you – it will discuss what debt consolidation is and how it works, why you would want to involve in debt consolidation, the pros and cons of the process and more.

Debt consolidation, as the name suggests, is about bringing together a number of debts which come at a high rate of interest, and sort of fusing them into one debt that is more easy to pay off and has a lower rate of interest. To illustrate, suppose you have accumulated debt on two credit cards, at the rate of 15% and 20% p.a., and also have to pay of another loan which comes at 16% p.a. If you find that your credit is not good any more, and that it is increasingly difficult to pay these loans, you can sign up for a debt consolidation programme, which will allow you to pay off these loans by giving you a new loan for the amount you need, with an interest of, say, 12% per year.

The pros of debt consolidation are as follows:

• Payments are easier to keep track of. This is because instead of having a number of loans to pay off, you only have one loan to pay off each month. You will know the importance of this if you have dealt with having to make multiple payments each month.

• The rate of interest that is charged by debt consolidation companies is lesser than that on other debts, such as credit card debts, bills etc.

• A consolidated debt plan can be either for a secured or unsecured amount. This means that you do not necessarily have to mortgage property for getting the loan, and so, you do not have to worry about foreclosure and everything else that ensues if you fail to pay a secured loan.

• Companies that offer consolidated debt plans will offer you some counseling and give you advice on your debt situation – this is likely to do you good in the long run, as professional advice can be a boon when you are facing a rapidly worsening debt situation.

Debt Consolidation

There are, however, not so attractive sides to debt consolidation. The cons of the same can be discussed here. If you are not careful enough in reviewing the debt consolidation scheme that is offered to you, you may end up paying more in the long run than you would have on multiple loans. Further, you may see this as an easy way out of debt, and will keep to your old spending habits which were what got you into debt in the first more news at

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