What is debt consolidation? Debt consolidation is obtaining a loan to pay off one or more other loans
. The right way to do this is to use the money from the consolidation loan to pay off several other high-interest debts.
The way it works is you get a loan from financial institution (a bank or credit union, for example), and use the money from the loan to pay off your other obligations. Be sure that the consolidation loan has a lower interest rate than the high-interest loans that you're paying off. That will help you to reduce your monthly payment.
Done the right way, a debt consolidation loan can help immensely in getting your house in order.Be sure to use that extra money to make advance payments on your debt consolidation loan. Then you will actually be digging your way out of debt. When you apply for the loan, make sure you are allowed to make extra payments on the principal.
Debt consolidation loans have several benefits: first, the debt consolidation loan has a lower interest rate compared to the other loans. Your consolidation loan might be obtained for less than twelve-percent interest, while credit cards often have a much higher interest rate.One of the main benefits to debt consolidation loans is that you only have one loan payment to make. This should make budgeting much simpler and reduce anxiety.
One alternative to using a debt consolidation loan is the idea of paying off your most expensive debts first. Apply every extra dollar you can scrape together to your highest-interest obligations. Then when that one is paid off, use the extra money in your budget to pay off the next highest-interest debt. You will soon find that the "snowball effect" makes your debts melt away like a snowman in summer.