Debt consolidation is a process where you combine multiple smaller loans in one long term debt to get a lower interest rate, lower monthly payment and to get rid of multiple loan payments each month. Debt consolidation can be used for secure and unsecured loans but the most common use is to combine multiple short term loans like credit cards, consumer credit and fast non-bank loans.
When you have multiple loans usually you will have to face multiple problems starting from high interest rates and other hidden fees to a moral burden that you have to make multiple monthly loan payments. When you have multiple loans and you do not use automatic payments it is very easy to mix something up and forget to pay one of those loans because every lender has its own monthly payment schedule and that can be a daunting task to keep up to multiple payments where each payment has a different amount and in some instances even different currencies.
If you want to avoid all these inconveniences then the best thing that you can do is to combine all your debt into one bigger loan in the process that is called debt consolidation. When you first hear the word consolidation you may think that it is something complicated and you need a financial assistant to complete this process, but in fact it is quite easy and you just have to take out a new long term credit that is bigger than all your previous debts and pay them with that money. And in doing so you will get rid of those multiple payments and from that point on you will have only one monthly payment that in most cases will be smaller than the combined sum from all the other short term loans.
You can consolidate and refinance your loans with the help of a bank, a private creditor or you can do it yourself but the principle in all those situations will be the same – you will take out a bigger loan that will liquidate all those other smaller loans. The biggest advantage of this consolidation process is the fact that you will most likely have a lower annual percentage rate (APR) and that means that you will save money in the long run. The bigger the difference between these interest rates the bigger the savings and if you combine multiple fast loans into a long term debt then usually you can at least cut these interest rates in half and that can be advantageous to your financial situation. Another thing that you can do is to extent your loan term by taking on a long term credit with longer repayment schedule and in that way you will greatly reduce the monthly payments. But be careful for some hidden fees as some lenders will ask you to pay some penalty if you want to terminate your loans faster but even with these extra up-front costs usually you will save money in the long run by combining all those smaller loans into one bigger loan.
Consolidating and refinancing your loans will always be beneficial to you but even after consolidating your smaller loans you should repay that new debt as fast as possible because longer repayment terms means more accumulated interest and in the long run you can loose a lot of money paying those monthly premiums.