Debt Consolidation Loans

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How do Debt Consolidation Loans work?

Debt consolidation is the process of combining various unsecured debts into one new loan. It attempts to equalize all of the debts a borrower has so that they do not have to worry about different loan term lengths, interest rates, and payment amounts. Many Americans have a handful of debts coming from all different directions, which creates confusion and difficulty in paying back these debts and can be very time consuming. A very common practice has emerged to attempt to solve this problem: debt consolidation.

It is common to roll student loans, personal loans, credit card debt, short-term installment loans, payday loans, and other types of debt into a debt consolidation loan. 

The financial institution offering debt consolidation pays off the existing debts and is now the creditor who rolls all the debts into one single loan. 

Debt consolidation is not debt relief, which seeks to resolve current debt with creditors by offering settlements to pay off the debt. Debt consolidation carries the same loan balances as the previous separate debts, simply seeking to join those balances, interest rates, and loan terms all into one place as stated above. In other words, debt consolidation seeks to reduce the amount of creditors, not the amount of debt owed by the borrower.

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