Debt consolidation loan

Debt consolidation loan is loan taken to pay off the all other existing debt (like credit card balance, consumer debt) but it has low rate of interest or low monthly payment or both. It doesn’t erase the debt but just transfer it to different lender at low rate. It is the good debt management step for a anyone.

Debt consolidation

When the consumer find himself stranded in different kinds of debt, he can apply for a loan in the institution he is already connected like bank, credit card companies. He can also go for other private mortgage companies. Apart from banks credit card companies this service is also provide by some specialized debt consolidation companies.

 There are two types of debt consolidation loan

• Secured : - loan is backed by some asset of borrower like property
• Unsecured: - loan is not backed by any assets. This type of loan have high interest rates and low qualifying amount.

Some of the most common means of combining your debt into single payment is

• Debt consolidation
• Credit card
• Home equity line of credit (HELOC)
• Student loan: -there are many direct consolidation option made available by federal government under federal direct loan program.

Advantages	Disadvantages
Only one single payment to deal with	Initially it will have negative impact on the credit score
Low interest rates	In will increase your debt /credit utilization ratio
It will help your credit score in long run	Some agencies charge hefty fees for the process
You can be debt free sooner
You can get tax break if the consolidated loan is secured