What kind of Debt can be consolidated?
You can consolidate any type of unsecured debt. This is because you don’t submit any collateral to your lender when you take unsecured debts. Therefore you can consolidate your personal loan, student loan and credit card debts.
Secured loans such as car loans are not consolidated under debt consolidation because the lender can use the security or collateral to realize the debt money.
Student loans can be consolidated under federal consolidation loans or taking loan from the banks. For federal consolidation loans you should have at least one outstanding federal loan. But if you are taking loan from the bank then this condition does not apply.
Consolidating your credit card debt is easy and you don’t have to approach a debt consolidation company for this. You can apply for balance transfer credit cards with zero interest time period rather than applying for debt consolidation.
Debt consolidation is the method by which you consolidate all your debts under one lender. Suppose you have a total debt of $20,000 that you borrowed from three lenders. You approach a bank named X and borrow the same amount at certain rate of interest. You use this amount to pay three borrowers from whom you borrowed $20, 000. Now you pay the bank X regular installments so as to clear off your debt.
There are two ways by which you can consolidate your debts. One is by approaching a company offering debt consolidation service and other is by taking debt consolidation loan. For debt consolidation loan you have to search the financial companies offering such type of loans. In this method you take the amount from the bank or the financial company and then pay all your lenders. Afterwards you will pay this bank regular installment at particular rate of interest.
The debt consolidation loans are available as secured debt consolidation loans and unsecured debt consolidation loans. You can choose the type depending upon your financial conditions and repayment capacity.
If you approach a company offering debt consolidation service then you just submit your payment to this company. Now it is the job of the company to pay your lenders. Generally the first payment is made to the lenders with higher rate of interest and subsequently to the lenders with lower interest rates.
Thus debt consolidation makes your debt management easier. It also reduces the total interest you pay. You borrow money from different lenders and pay them at different interest rates. By consolidating your debts you pay to one lender regular installments at certain fixed or variable interest rate. Thus this lowers your total interest rate.