What is debt consolidation?


Quick Answer

Debt consolidation is a program offered by some companies that allows a person to take out one loan to pay off their other outstanding unsecured debts by simply make one payment a month. Most of these types of loans are at an overall lower interest rate than the individual loans and credit accounts accumulated. These loans are often gained through a second mortgage or home equity line of credit.

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Full Answer

Debt consolidation loans can be personal loans as well. The choices for consumers depend on what type of funding source they go through. There are numerous companies that are set up specifically to carry out these types of loans. These companies usually give customers various options to take out the loans, depending on what collateral they have or the kind of credit available.

Consumers who decide to use their home equity or home equity line of credit may be eligible for tax deductions on the interest of a debt consolidation loan. All debt consolidation programs urge consumers to change their spending habits and not take on more debt once the consolidation loan is paid off. A person may not have to go through a debt consolidation company, if their credit is good enough. With a healthy credit rating they may be able to secure a loan themselves to pay off their unsecured debts.

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