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, generally with more favorable payoff terms-- a lower interest rate, reduced monthly payment, or both. Debt consolidation can be utilized as a tool to take care of student loan debt, credit card debt, and other liabilities.
How Debt Consolidation Works
Debt consolidation is the process of using various kinds of financing to pay off other debts and liabilities. If you are saddled with different types of debt, you can apply for 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.
Most consumers apply via their bank, credit union, or credit card company for a debt consolidation loan as their first step. It's a good place to start, especially if you have a great relationship and repayment history with your institution. If you're declined, try checking out private mortgage companies or lenders.
Creditors agree to do this for several reasons. Debt consolidation increases the probability of collecting from a debtor. These loans are generally offered by financial institutions such as banks and credit unions, however there are other specialized debt consolidation service companies that offer these services to the public.
An important point to keep in mind is that debt consolidation loans don't erase the original debt. Rather, they simply transfer an individual's loans to a different lender or kind of loan. For actual debt relief or for those who don't get approved for loans, it may be best to look into a debt settlement rather than, or in conjunction with, a debt consolidation loan.
For more information about a Debt Consolidation Lawyer in Santa Ana, California, contact Thomas K. McKnight LLP at (800) 466-7507 or visit our website at TKMLLP.Com for a free consultation!