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Debt Consolidation is the process of taking smaller loans, or credit card debt, and putting these obligations together into a larger, consolidated loan. Debt consolidation allows the borrower to lower their total cost of credit by leveraging the lower interest rates and administrative costs associated with a larger loan.
The debt consolidation process usually involves taking unsecured loans, such as credit card debt, and turning them into a secured loan, such as a second mortgage on a home. This means creditors have a legal claim to the property, if the individual should default on the loan through a pattern of nonpayment. Consolidation loans provide the individual with tax advantages that are not available with other kinds of debt payments.
Debt consolidation is an alternative to other debt reduction, or elimination, choices such as budgeting, bankruptcy, debt negotiation, or seeking the help of a debt counselor. |
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