What Is Debit Consolidation

Debit consolidation can be defined as taking of a loan in order to pay off many other smaller ones. Debit consolidation is mainly done when a secured loan is taken against a collateral security, most commonly which is a house. In such a case, a mortgage is taken against the house. The mortgage or the collateralization of the asset attracts a lower rate of interest because with the collateralization the owner of the asset agrees to pay off the loan amount by the foreclosure of the asset. Hence the risk to the lender is reduced to a certain extent and therefore a lower rate of interest is offered.

The exact purpose of a debit consolidation is that on obtaining such a consolidation you can place all your debts in one place under better terms than before. Also with a debit consolidation strategy you might end up paying lesser each month, than what you did earlier. But there are risks too, associated with taking a debit consolidation.

It is important to note here that debit consolidation programs are nothing but a bigger loan taken to pay off the smaller ones. Hence certain amount of interest has to be paid on this loan too. Sometimes these programs can lead to paying a higher rate of interest than before, so they must be taken with care and after adequate research. Again there is a chance of your losing your house in case you are unable to pay the second mortgage or the debt consolidation loan for which your house is kept as a collateral security. Therefore the decision to take a debit consolidation loan must be really thought for.
The right time for debit consolidation programs
It is not that debit consolidation programs are entirely useless. They may be beneficial for the borrowers in particular cases which are discussed as below:
1. In case you are paying many different debts at a particular time, it is easier to consolidate them into one. With the consolidated debt, you will now get one single monthly statement which is easy to remember and pay.
2. At times, you may be end up paying lesser each month by way of interest as the debit consolidation can be taken at lower interest rates. Hence there is spare cash at the end of each month which can be used elsewhere.
3. A successful strategy for the optimum utilization of a debit consolidation program is the payment of the debts that attract higher rate of interest first and then make payments to the ones with the lower interest rates.


Things that must be remembered with debit consolidation programs
The thing that is of prime importance is that debit consolidation is nothing but a shift in debt. It does not eliminate the burden of paying the debt, as you owe the money and you have to pay it back sometime.
Payment of credit card dues can lure you into the trap of again using the credit that is available. However this would only dig a deeper hole in your pocket.
With the debit consolidation program you might be stretching over the payment period which may lead to paying up more interest in the end.
The possibility of losing your home is of prime concern. Therefore careful planning and money management is needed if opting for debit consolidation programs.