Debt Consolidation entails taking out one loan to
pay off many others. This is often done to secure a lower
interest rate, secure a fixed interest rate or for the convenience
of servicing only one loan. Often, student loans are consolidated
for all of the above reasons.
Sometimes, debt consolidation companies can discount the
amount of the loan. When the debtor is in danger of bankruptcy,
the debt consolidator will buy the loan at a discount. A prudent
debtor can shop around for consolidators who will pass along
some of the savings. Consolidation can affect the ability
of the debtor to discharge debts in bankruptcy, so the decision
to consolidate must be weighed carefully.
Debt consolidation is often advisable when someone is paying
credit card debt. Credit cards can carry a much larger interest
rate than even an unsecured loan from a bank. Debtors with
property such as a home or car may get a lower rate through
a secured loan using their property as collateral.