What is Debt Consolidation?

February 16, 2010 by Victorino
Filed under Debt Management

What is the meaning of debt consolidation? Will it help borrowers from getting out from debt troubles? People who are buried with multiple loans may consider biting on a debt consolidation program to attain lower monthly payments and longer repayment period. The convenience of having a single loan also adds its attraction. Debt consolidation is the process of replacing two or more loans with a single loan, usually with a lower monthly payment a longer repayment duration. This is also known as a consolidation loan. As its name suggests, several smaller loans are replaced with a lone larger loan. Debt consolidation may be the cure to the financial troubles faced by most borrowers. However, the lower monthly payments that it promises may only benefit a debtor in the short-run and not in the long-run. Remember that this process extends the length of the repayment period. In the short-term this gives a borrower a relief, but in the long-term it only put him farther from financial freedom. People may temporarily resort to debt consolidation when it’s already too late for them to prevent the troubles of having several desperate loans. But when this credit nightmare is not yet happening to anyone of us, we should bear in mind that the best and most effective ways in getting out of debts is personal financial planning and avoiding bad credit habits including spending more than what is budgeted, charging when you can go on cashing, hiding credit problems, ignoring credit reports, repaying only the minimum, not making an emergency funds and other habits a borrower should always avoid.