How does Debt Consolidation Work?
Debt consolidation, or combining your debts, allows you to take out a single loan to replace multiple debts. Your individual debts will be paid off, and you’ll have one single loan to repay. If done properly, you should benefit from having a new lower monthly repayment and a lower, singular interest rate.
To get started, make a list of each debt, along with the payment term, repayment rate and interest rates. Then you need to calculate the total value of the debts you’d like to consolidate. To make sure you get a better interest rate than you are paying, calculate the average interest rate of all your debts (add up the interest rates and then divide them by the number of debts to get an average). Once you know the amount, you can shop around for the best debt consolidation loan by seeing which ones offer the best terms. Depending on your situation you may be looking for the lowest interest rate, or you may need a longer payment term to make payments more affordable.