You’re merely transferring multiple debts into one account or getting a new loan with an extended term to pay them all off.This means you’ll be in debt longer and you could get into more trouble if you miss making payments or rack up more debt.Consolidation loans are offered through financial institutions, usually banks or credit unions, and all of your debt payments are made to the new lender.
In some circumstances, a consolidation loan might result in a lower total monthly payment or a lower average interest rate on your debt.
Unfortunately, this savings can be offset through extended repayment terms, so be sure to consider the long-term costs of consolidation loans.
Most consolidation loans are secured with one of your assets, such as your home, car, retirement account or insurance policy.
Only accept a secured consolidation loan if you are comfortable with putting up considerable collateral.
If you are looking for a short-term solution to quickly reduce your debt, debt settlement may be the route to pursue.
However, other options exist, and there might be a better debt relief program for your unique situation.
(For related reading, see "Debt Consolidation: When It Helps, When It Doesn't.") A debt settlement strategy does not seek to replace existing debt with a new loan, as consolidation does.
Instead, debt settlement is a series of negotiations between your creditors and you (or a credit counselor) to make pay less than you currently owe, usually in a lump-sum payment.
Consolidating debt is a good way to get out of debt, but it may not be for everybody. There are advantages and also pitfalls that can lead to more debt.