What is the meaning of debt consolidation?
Wondering what is the definition of debt consolidation? For borrowers, this financing program could be their debt relief. Debt consolidation, as the terms suggest, is the combination of several debts or loans into a single loan. This is usually done by people to have the convenience of having a single loan, achieve lower monthly payments, and attain longer repayment period. To define the meaning of this process, I have presented below different definitions from various top resources on the web.
The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. also called consolidation loan.
- InvestorWords.com-
The action of combining several loans or liabilities into one loan. Put another way, debt consolidation is the process of taking out a new loan to pay off a number of other debts. Most people who consolidate their debt are usually doing it to attain a lower interest rate, or the simplicity of a single loan. Also known as a “consolidation loan”.
- Answers.com -
The process of taking out a loan that pays off two or more loans. Debt consolidation often comes with a lower monthly payment and/or interest rate than the previous loans, as well as a longer repayment period. The loan by which debt consolidation take place is called a consolidation loan; the process is often used for student loans.
-Financial-directory.thefreedictionary.com -
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.
- Wikipedia -
Replacement of several smaller loans with one large loan. Usually, the new loan has longer payback period, and its monthly installment amount is smaller than the total of the monthly installment amounts of the older (replaced) loans.
- BusinessDictionary.com
Conclusion:
Debt consolidation can be the answer to the financial troubles experienced by most borrowers. However, though this system can give them lower monthly principal and interest payments, this relief can only be temporary. This is because the period of repayment may become longer, and consequently, the total interests (or finance charges) as summed up for all the periods, may become higher. As a conclusion, the solution on people’s problems on credits and debts still lies on strategic financial planning; and avoidance of bad credit habits like charging when you can go on cashing, ignoring your credit records and spending more than you are living.
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Consumer credit counseling will not help you eliminate the debt, its called debt management for a reason. It will take 5-9 years for you to complete. Just so you are aware of your options here are the different options that you might have to get rid of your debt.
Another widely used meaning of debt consolidation is consolidation through setting up a debt management plan. This meaning of consolidation is more common in the US, and does not involve borrowing any more money. The focus is on changing repayment terms of existing debts to make the repayments more affordable. The consolidation part is through the single payment to the debt management company instead of paying lots of separate debts.