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Debt consolidation is a means of debt refinancing that involves taking out a new loan to pay off other loans and credit card debt.
People traditionally use personal loans, low-interest balance transfer credit cards, and debt management plans for debt consolidation.
You have multiple options for debt consolidation: Each option has advantages, disadvantages and challenges.
Here’s a closer look: If you’re struggling with debt, you may have already been approached by companies that promise they will help you wipe out your debt. Such companies may charge you hefty fees for consolidating your debt, and it’s possible to wind up even further in debt if you don’t fully understand the company’s fees and conditions.
Whichever option you choose, you will use it to pay off your multiple balances.
Then you’ll only have one monthly payment: the loan, the credit card or the debt management plan.
Compare loans for debt consolidation and learn about your options for consolidating debt.
By understanding how consolidating your debt benefits you, you'll be in a better position to decide if it is the right option for you.
In general, debt consolidation loans can reduce the amount of interest you pay each month, reduce the number of creditors you have to deal with, and shorten the amount of time it will take to pay off your debts as long as you qualify and keep with the program terms.
If you’re struggling to pay high interest rates on a lot of unsecured debt, consolidation may seem like an attractive solution.
But debt consolidation is not always the best way to deal with debt issues, and it has drawbacks you should be aware of before you move forward with it.
What’s more, there are several ways to go about consolidating debt, and depending on your circumstances, one method might make more sense for you than another.