What Are Debt Consolidation Loans?

Debt consolidation loans are loans that you could get to pay off all the balance on your debts

. This can include credit cards, signature loans and even medical bills or school loans.

With debt consolidation loans, the lender pays off your creditors and combines all the balance amounts into one loan with a single payment that has a relatively lower and fixed interest rate. Some organizations even write off some amounts for you and allow you to make monthly payment or refund that your income can conveniently accommodate. Thus, you can then have the convenience of servicing only one loan with a relative peace of mind.

A debt consolidation loan could simply be an aggregate of several unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as a collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings.

However, there are some debt consolidation programs that may do you more harm than good. They may put you into more debts and give you more worries in the long run. So, if you really want to experience a healthy financial relief from your debts, don't apply for any debt consolidation program until you learn how and where to secure genuine and trustworthy consolidators that will truly satisfy your needs; otherwise, you might end up burning your fingers and get yourself real hurt.

What Are Debt Consolidation Loans?

By: stone bruce

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