Consolidation loans are used to combine all of your existing debts (loans, credit cards, etc.) into one large loan at a lower rate. This will allow you to reduce your monthly payments.
Debt consolidation loans allow you to manage your debts more effectively by allowing you to focus on one financial payment rather than several. The monthly (or weekly) payment is usually lower due to the lower interest rate and longer term (usually between one and seven years, depending on the amount and purpose of the loan). You do not need collateral to secure a consolidation loan, although your interest rate would be lower if the loan involves an asset that could serve as collateral (which lowers the risk of the lender because they can foreclose on the collateral if the loan isn’t paid). If you are in danger of foreclosure of the asset used to provide collateral for another loan or bankruptcy, you can usually use a debt consolidation loan to buy out the delinquent loan, sometimes at a lower interest rate.
As always, make sure you understand the terms of any loan such as the interest rate, monthly payments, and the length of the loan.
