Loan consolidation is the process where the multiple debts of the debtor are consolidated into a new single loan. This new loan is provided by various financial institutions and lenders. The new loan usually has lower interest rates as compared to the older loan. The new loan has to be repaid in a single monthly installment to the new lender. Loan consolidation depends on a number of factors like the credit scores of the debtors.
How can loan consolidation help me?
Loan consolidation is one of the most effective methods of settling various kinds of debts. This loan is provided at lower interest rates as compared to the previous loans. Hence the amount which is saved on the interest rate can be used for repayment of the loans instead. Also the lender has to be provided with a single monthly installment; hence the debtors have to pay one lender instead of multiple lenders. This new lender repays the debts of all other lenders or creditors. The process of loan consolidation also helps in improving the credit scores of the debtors, which is vital for the financial future of the debtors.
Differences between debt consolidation and debt settlement
The process of debt consolidation and debt settlement are different. In the debt consolidation loans the debtors are provided with a new loan, which is used for repaying all previous debts. But in debt settlement the debtor or the professional negotiator try and convince the creditor to reduce the amount of the debt or eliminate the debt completely. In debt consolidation loans there are greater chances of success as the creditors are confident of receiving their total debt amount along with the interest rates. But in debt settlement the chances of success are minimal because the creditors have to compromise on their principal amount or eliminate a huge part of the principal amount. In debt consolidation the credit scores improve drastically but in debt settlement the credit scores fall due to non payment of debts.
Credit card debt consolidation
Through the process of credit card debt consolidation all the debts of the credit cards can be settled. Usually the debts on the credit cards are also multiple debts. There are various other ways of settling the debts of the credit cards like debt reduction and debt settlement, but of these lower the credit scores. With credit card debt consolidation, multiple credit card debts can be settled and credit scores can also be improved.