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What is "debt consolidation"

What is "debt consolidation"

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Debt consolidation is the practice of taking out one large loan to pay off a bunch of smaller debts that are charging higher interest.

Debt consolidation may or may not be a good idea, depending on your situation. Lower interest is a good thing, but turning unsecured debts (like credit card bills) into secured debts (like a home equity loan) can be a costly mistake if you eventually file bankruptcy anyway. Unsecured debts can often be eliminated in bankruptcy, while most secured debts cannot. If you can't pay your secured debt -- or if the payments are late -- you may lose your home.

Also, the fees for setting up such loans can be expensive.

 

 
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