The Definition of Loan Consolidation

The definition of loan consolidation is pretty simple. Loan consolidation is when you take several loans and/or credit cards and roll them into one new “consolidated” loan. This new loan will have new repayment terms, a new payment amount, a new interest rate, and may be provided by a new lender.

Loan consolidation has many benefits, including the knowledge of when you will become debt free. How? It is an “installment loan” that comes with a specific number of payments. At the end of the payments, the debt is paid in full. You know exactly when the loan will be paid off. A good example of an installment program is an auto loan. When you buy a car you know exactly what your monthly payments will be and how long you have to make them until your car is paid off.

Another benefit is a significant reduction in the monthly payments you are shelling out each month. The monthly amount you pay for your loan consolidation will be much less than the sum of your current loan/credit card payments. In other words, let’s say you have several loans or credit cards and you add up the payment amounts on all of those balances. Pretend the payments add up to about $1,000 per month. When you roll all of your balances into a consolidation loan with a lower interest rate, your payment may only be around $500 per month. And don’t forget, with that $500 payment you also get an end date showing you exactly when your debt will be eliminated.


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