Law Offices of Thomas K. McKnight - Debt Consolidation Lawyer
What Is Debt Consolidation?
Debt consolidation refers to the act of taking out a new loan to pay off other liabilities and consumer debts. Multiple debts are combined into a single, larger debt, such as a loan, usually with more favorable payoff terms-- a lower interest rate, lower monthly payment, or both. Debt consolidation can be utilized as a resource to handle student loan debt, credit card debt, and other liabilities.
How Debt Consolidation Works
Debt consolidation is the process of using various types of financing to repay other debts and liabilities. If you are saddled with different kinds of debt, you can request a loan to consolidate those debts into a single liability and pay them off. Payments are then made on the new debt until it is repaid in full.
The majority of individuals apply via their bank, credit union, or credit card provider for a debt consolidation loan as their first step. It's a good place to start, particularly if you have a great relationship and payment history with your institution. If you're declined, try exploring private mortgage companies or lenders.
Creditors are willing to do this for several reasons. Debt consolidation increases the likelihood of collecting from a debtor. These loans are typically provided by financial institutions such as banks and credit unions, however there are various other specialized debt consolidation service companies that offer these services to the general public.
A vital point to keep in mind is that debt consolidation loans don't eliminate the original debt. Rather, they simply transfer a consumer's loans to a different lender or kind of loan. For actual debt relief or for those that don't get approved for loans, it may be best to consider a debt settlement rather than, or along with, a debt consolidation loan.