The Facts Of Debt Consolidation

Debt consolidation enumerates the phenomenon of aggregating two or more loans into one loan

. This is used to protect a low interest rate at fixed terms. By taking this facility the borrower pays only a smaller amount instead of different payments to lenders. It clubs various interest rates offered by many lenders and converts it into a lower interest rate with one payment, easily manageable by the borrower. It is often used by the holder of credit cards who have accumulated a large sum of money owed to various financial institutions and want to get rid of it.

The introduction of the credit cards created a situation in which people are attracted towards their easy way to take a loan. But they ignore the consequences of their use. They carry higher interest rates but people don't focus on this aspect. As a result of it an individual reaches in a position where it becomes unable for him to pay off his monthly installments. Here the situations gives rise the need of consolidating his debts.

There are two critical situations that compels the borrower to resort the consolidation of his debts. Firstly he wants to consolidate his unsecured loans owing to higher interest rates. Secondly when a person suffers from financial crises and becomes unable to pay his liabilities. In these two situations, the need for consolidating the debts arises.

During this process of consolidation, a lender offers his services to the borrower and pays his debts and charges a single installment. In this way although monthly installment reduces yet the schedule of payment increases. When a borrower contacts the consolidator and gives all the information about his existing creditors. Now consolidator negotiates with the creditors of his client on his behalf. When the terms and conditions are settled the process goes ahead.

Among other advantages of consolidation, it gives the victim the relief from the stress that harassment of the creditors give him. It offers extrinsic as well as intrinsic advantages to the borrower. To pay a single installment in place of many installments to different lenders, is also a vivid advantage that consolidation caters for.

Adoption of this financial process may increase the time period of payment. Sometimes the borrower have to bear the loss in the shape of higher interest rates due to bad credit history. As a result of taking this financial instrument no change occur in the final liability of the borrower, it brings a change in the process of payment only.

Debt consolidation has gained a momentum in developed as well as developing countries. In the developed world people are invited by the lenders to take loans on lucrative terms and conditions. People take unnecessary loans and suffers from financial difficulties. This refers them towards relying upon consolidators of debts.

by: Tom Martens.

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