As the term implies, debt consolidation aims to consolidate your debt. It is a form of debt refinancing. The way it works is to take out a new loan to pay off many other loans and consumer debts. As a result, debt consolidation combines a number of your debts into one loan, saving your energies and efforts spent on them. With a debt consolidation loan, you can concentrate on the singlel piece of debt.
For a person who faces a bankruptcy with several debts, it is always a good option for him to apply for a consolidation loan. Merging them into a single payment is not the only advantage. Besides, it may offer you a much more favorable interest rate or a longer period of time. It is possible that the lending institution provides you with both the two benefits. Therefore, it relieves you from the heavy financial burden. You can take your time to repay your loan.
As Gail Vaz-Oxlade (the personal finance guru formerly behind TV’s “Til Debt Do Us Part”) puts it, debt consolidation is a way to save “bags of money”. In a debt consolidation loan, you no longer have to remember different payment dates of your multiple bills. The more bills you have got, the more stress you will be under. In this case, a debt consolidation really saves you from the overwhelming tension.
After you get a debt consolidation, the lender does not pay off all of your previous debts at once. Instead, he repays them one by one. Sometimes the lender determines which one of your debts he will pay off first. But its your turn to make the decision if the lender lets you decide. Usually you give the first priority to the loan with the highest interest rate. However, if you suffer a lot from the pressure of a personal loan, then you can put it at the first place.
Whenever you have trouble in paying off various loans, remember that debt consolidation is always there to solve your problem.