Mika
VIP Contributor
Debt consolidation is a process of refinancing your debt. This process will allow you to have one big debt instead of multiple small debts. Let’s say you have a car loan, house loan, student loan, credit card loans, etc. You then borrow a big amount and app your all debt to have one single debt. Debt consolidation is actually debt refinancing for personal finance (it is also used in the business world, or even by the governments).
Debt consolidation will be good provided the debt you are paying off has high-interest rates and the new debt has comparatively lower rates. Let's say your loans have interest rates of 6-10 percent, and if you get a new loan with an interest rate of 7 percent, your new payable interest rate will be lower than your previous interest rate. If you want debt consolidation, you need to remember to pay off high-interest debt first, and then move on to the lower-interest debt. You should also pay off small debt first.
Debt consolidation will be good provided the debt you are paying off has high-interest rates and the new debt has comparatively lower rates. Let's say your loans have interest rates of 6-10 percent, and if you get a new loan with an interest rate of 7 percent, your new payable interest rate will be lower than your previous interest rate. If you want debt consolidation, you need to remember to pay off high-interest debt first, and then move on to the lower-interest debt. You should also pay off small debt first.
