What is Debt consolidation
In economics, consolidation is defined as the combination of several financial liabilities into one loan while maintaining a unified interest rate and setting a new repayment date. Consolidation, bonding, merger takes place under conditions determined by the bank providing debt consolidation.
The main purpose of this undertaking is to reduce the costs related to loan servicing. It is related to the fact that the installment of the loan is lower than the sum of installments of liabilities that will be subject to the consolidation process.
What is the consolidation loan?
Consolidation is a combination of financial obligations into one loan.
Not without significance is the fact of comparing the consolidation to the image of the puzzle, as it is based on combining elements into one whole, in this case several financial obligations – loans and credits, into one.
hese can be cash loans related to the purchase of a car, going on holiday or repairing an apartment, as well as long-term loans and a mortgage. The terms of the loan and the interest rate are harmonized, and the repayment date is extended accordingly.
Thanks to this, the customer is able to repay one installment instead of several.
Debt consolidation – for whom?
Although it may seem that consolidation is the perfect solution to our problems with repayment of loans or credits, we should not be too hasty to approach it.
Consolidation is help, but not an antidote to our debts. He has to support us in paying the debts, but it will not make our installments disappear.
Therefore, you should consider your financial situation and decide on a consolidation loan if:
- We have several financial obligations with different repayment dates
- we are afraid of losing financial liquidity
- we want to organize our home budget
- we need more time to pay off the debt
- we would like to additionally insure your loan
People who currently have a problem with fulfilling the obligation of timely repayments, may firstly not get a chance for a consolidation loan, and secondly they simply incur another debt, with which repayment may also occur.
Credit consolidation is nothing but signing a new financial commitment. Therefore, if you manage your home budget poorly and manage your money inappropriately, then combining your debt into one loan will not help much.
First of all, you should make order with your expenses and then consider whether we will be able to repay the installments of the consolidation loan on a scheduled basis.