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Once you have built a budget and you have determined how much money is left over to service debt you may want to consider obtaining a debt consolidation loan. A debt consolidation loan is when a creditor (usually your bank) takes all of your debt and puts it all together (consolidates) into one single loan. The bank pays out all of the debts owing to each of the creditors and you make a monthly payment to your bank to pay back the money you borrowed (with interest of course).
Before the bank will do something like this they will want to see if you have some type of asset that they can take a security on. This means that if you don’t make the payment on the loan they can take the asset that you pledged as security and sell it to apply the money they receive to the loan (of course you’ll also have to pay any further amounts that are owed on the loan too if the asset doesn’t sell for enough to pay the balance owed).
Paying several credit card bills each month can take a big bite out of your budget. That’s one of the reasons many people consider consolidating their bills into one monthly payment. The benefits of debt consolidation can ease the pressure of your budget and help you pay off your debt faster.
What is debt consolidation?
Combining your debt into one account is referred to as debt consolidation. You can consolidate several credit cards into one through a balance transfer, or you can combine unsecured loans. You can also consolidate student loans.
Consolidating debt is a great way to help eliminate it. With debt consolidation, you combine your debts or take out a loan and pay them off, leaving you with one monthly payment. This not only helps you save money on interest and pay off your debts faster, but only making one payment a month can help alleviate stress.
Debt Consolidation can actually take a number of different forms, and each one has pros and cons to consider.
Here are three ways you can consolidate your debt: