Debt Consolidation

Hanna Fanter and Paige Kane

What is debt consolidation?

It is a form of debt refinancing to help eliminate all existing debt by taking out one loan to pay off multiple loans. This form of refinancing can be helpful or harmful depending on the the type of debt consolidation that one uses.

How can debt consolidation affect your credit?

Debt Loans

A debt loan is taking out one loan to pay off others. This is helpful because it simplifies payments into one, lowers interest rates, and lower minimum payments. However, if you apply for debt loans, you will have to qualify for them. There are certain aspects that are taken into consideration before your loan is accepted.

Why is debt consolidation a smart way to pay off loans and erase debt?

Secured Loans

When using a secured loan, you are agreeing to paying your payments in order to keep your loans asset or property. Secured loans offer a higher amount of money borrowed due to them being used for bigger purchases. There is more flexibility on these loans since they are more expensive, but you are in debt for a longer time period. Also, if you fail to pay the payments, you will lose your property or assets. This is called collateral.

Unsecured Loans

When you have an unsecured loan, you aren't risking yourself by having collateral. Instead, you will have to pay a higher interest rate. This type of loan is harder to receive because you need a certain credit score. This loan is helpful for a short time period because you are borrowing money and can be charged high rates instead of collateral.

Debt Consolidation Company

A debt consolidation company cuts down your monthly payment but is designed to make money off of you. They do this by charging higher interest rates and a longer time period to pay off the loan, which increases your overall payment.

Why should you be careful when choosing a debt consolidation company?