If you are up to your eyebrows in debt and feel out of control, personal loans can come to the rescue. In fact, the number one use of a personal line of credit is to consolidate unsecured debts. Debt consolidation offers many advantages to consumers such as reduced monthly payment amounts; a single payment per month instead of multiple payments; and it allows you to catch up or avoid going into default on loans that you may fall behind on. In this article, we break down the basics of debt consolidation so you can decide if using a personal loan for this purpose will work for you.
What Debt Consolidation Means
When you use personal loans to consolidate unsecured debt, you are practicing “debt consolidation.” Basically, this means you are taking out a new, big loan to cover the balances left on all your other unsecured debts. The old debts are paid off. Under the terms of your new personal loan, you make one monthly payment rather than several payments as you did when you had several loans to pay. In some ways, it’s like starting over with your consumer debt.
Advantages of Debt Consolidation
Many people use debt consolidation as a way to manage debts that have gotten out of control. If you cannot keep track of all the loan payments you must make per month and fall behind, then the convenience of having only one payment to make per month may be well worth it. In addition, personal loans may have a longer term, allowing you to pay off the debt over a longer period of time and giving you a smaller monthly payment. Personal loans also have a lower interest rate than many unsecured debts, such as credit cards. By consolidating these debts under a lower interest rate, you could save thousands of dollars in the long run.
What Debts Are Eligible for Consolidation?
Almost any unsecured debt is eligible for debt consolidation. This includes credit card debt, medical debt, debts for services such as household goods or furniture obtained with a store line of credit, and so forth. Secured debt, such as your home, your car, and student loans, is not eligible for this kind of debt consolidation. If you have any questions about the process, your bank or credit union should be able to help. Other possible resources for personal loans include other banks, such as Internet banks; person to person lending sites; and specialty lenders who focus on offering debt consolidation to consumers.