Start Best banks for consolidating debt

Best banks for consolidating debt

If you use your home as security, you’ll likely qualify for the very best interest rate.

In doing this they effectively bring all these debts together into one combined loan with one monthly payment.

Since this is bringing multiple debts together and combining them into one loan, this is referred to as “consolidating” them. In reality, it’s actually technically impossible to combine loans and merge them together.

People get debt consolidation loans for a number of reasons: When you receive a traditional debt consolidation loan, the company lending you the money either uses the funds to pay out the debts you jointly agree will be paid off, or they deposits the funds it in your bank account and it is then your responsibility to pay out the debts or bills you wish to consolidate with the loan proceeds.

Interest rates for debt consolidation loans are primarily determined by two factors: your credit score and the collateral you can offer for the loan.

Instead of realizing they’ve been overspending and create a plan to get back on track, they make their financial situation worse by continuing to spend more than they make.

In the long run, the consolidation loan only puts them in a worse financial position because they run up new credit card and/or line of credit balances that they have to pay every month in addition to their loan payment.

Learn More: How your credit score is calculated Collateral for a loan is an asset you can pledge as a guarantee or loan security in case you are unable to repay the loan.

The only collateral banks or credit unions are interested in is something that can quickly and easily be converted into cash.

They know they’ve made a smart move by reducing the interest they’re paying, and their finances are so much easier to manage with one monthly payment.

Many times this monthly payment is lower than their previous payments, so now they’ve got extra breathing room in their finances and a little more money to spend. The problem is that a lot of people get debt consolidation loans because they have been spending more than they earn.

The Economics Department is part of Pitt's Dietrich School of Arts and Sciences.