What is a debt consolidation loan? A debt consolidation loan is a loan you get to pay off other debts.
Why does someone get a debt consolidation loan?
There are two common reasons for getting a debt consolidation loan:
First, you get a debt consolidation loan because you only want to make one payment each month, instead of trying to make lots of payments on many different debts.
If you owe money on four different credit cards, you might get a credit card debt consolidation loan, so that instead of making four payments each month, you only make one payment each month.
With a debt consolidation loan, it is easier to manage your monthly cash flow, since you are only making one payment each month. Many people who get paid twice a month find it difficult to budget if they have many different payments each month, so a debt consolidation loan makes monthly budgeting much easier, since they only have one payment per month to worry about.
The second reason for getting a debt consolidation loan is to reduce the interest you are paying each month.
Going back to our previous example about a credit card debt consolidation loan, if you have four credit cards and you are paying 19% interest on them, it may be possible to get a debt consolidation loan for your credit cards and reduce the interest you are paying each month.
If you qualify, a bank or other lender might give you a Debt Consolidation Loans to repay your credit cards at a rate of 8% interest. Over an entire year, the difference between the 19% interest you were paying on your credit cards, and the 8% you are now paying on your debt consolidation loan would be 11%, or $2,200 on $20,000 worth of debt per year.
It's easy to see that by reducing the interest you are paying, you are now able to repay your loan much faster than you would be able to repay all of your credit cards individually.
In this example, a debt consolidation loan is an excellent way to reduce the amount you are paying, and repay your debts faster.
To find out if a debt consolidation loan is right for you, check out our FREE debt consolidation loans calculator, or use our free search tool to search for more debt consolidation loans information: