What is consolidating

Consolidating your debt might provide financial relief.As the name suggests, in debt consolidation you combine several of your monthly debts into one new loan.“If the debt resulted from overspending or uncontrolled credit card spending, consolidating the debt onto one card or account will, more often than not, lead to a return to overspending on the newly paid-off accounts.” Not all debt can be consolidated.Only unsecured debt – debt that does not come with collateral – can be consolidated. If you don’t pay your mortgage loan, your lender can take your home through the foreclosure process.Unsecured debt is any debt that isn’t backed by collateral.This includes most personal loans and credit card debt. Examples of unsecured debt that you can consolidate include: One of the simplest ways to consolidate your debt is to transfer the balance from a credit card with a high interest rate to one with a 0% introductory rate.But it won’t work if these same consumers aren’t willing to then change their spending habits.

In these cases, your home and car are your collateral.

The goal is to leave you with a single monthly payment that you can afford and to reduce the interest you are paying on your debt.

It’s not surprising that many consumers might consider debt consolidation.

These 0% rates don’t last forever, with most lasting from six months to a year.

But by swapping debt that comes with a far higher interest rate – 20% or more on some credit cards – to a 0% card, you can dramatically reduce the amount of interest you pay on your debt. You can only use it to pay off existing credit card debt.

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