Definition of Debt consolidation:
The term debt consolidation refers to the act of taking out a new loan to pay off other liabilities and consumer debts, generally unsecured ones. Multiple debts are combined into a single, larger piece of debt, usually with more favorable payoff terms. Favorable payoff terms include a lower interest rate, lower monthly payment, or both. Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt, and other liabilities.
Replacement of several smaller loans with one large loan. Usually, the new loan has longer payback period, and its monthly installment amount is smaller than the total of the monthly installment amounts of the older (replaced) loans.
As noted above, debt consolidation is the process of using different forms of financing to pay off other debts and liabilities. So when a consumer is saddled with different kinds of debt, they can apply for a loan to consolidate those debts into a single liability and pay them off. Payments are then made to the new debt until it is paid off in full.
How to use Debt consolidation in a sentence?
- There are two different kinds of debt consolidation loans: secured and unsecured.
- Debt consolidation loans don’t erase the original debt but transfer a consumer's loans to a different lender or type of loan.
- Consumers can apply for debt consolidation loans, lower-interest credit cards, HELOCs, and special programs for student loans.
- Debt consolidation is the act of taking out a new loan to pay off other liabilities and consumer debts, generally unsecured ones.
Meaning of Debt consolidation & Debt consolidation Definition