What Debts to Consolidate With a Consolidation Loan Debt consolidation refers to the process of taking a consolidation loan to pay back multiple debts. Borrowers usually resort to debt consolidation to obtain a fixed interest rate or lower interest rate, but this practice is also convenient in servicing a single loan. If you wonder what debts you can consolidate, this can involve consolidating unsecured loans. The new loan is also of the unsecured variety. You can also consolidate your loans into a secured loan by way of offering collateral. Real estate is most commonly used as collateral, especially when it comes to mortgage loans. The lender faces lower risk and will often offer a lower interest rate on the new loan. There are different types of debt you can consolidate, and these include high-interest loans and bills. For example, you can consolidate high interest credit cards, department store credit cards, unsecured personal loans, service bills like utilities, etc. There are different ways to approach debt consolidation as well. You can apply for a debt consolidation loan, a home equity line of credit, or a home equity loan. Taking out a home equity loan can be risky in that you risk losing your house. You can also opt for a balance transfer, transferring your balances to a zero percent credit card. In general, debt consolidation loans do not limit the types of debts you can consolidate. As long as you are allowed to settle your original debts by making a final payment, it is irrelevant whether your loans are unsecured or secured. Bear in mind, however, that when you were approved, you might have agreed to repay the full amount of the loan, plus interest. Interest is normally calculated daily or weekly, and if you repay earlier, the bank will lose some of the money you were supposed to pay in interest. Naturally, this comes with consequences. Some financial institutions may charge you an early settlement fee or early repayment fee. This fee may be computed as a percentage or it may be in the form of a flat charge. Still, debt consolidation allows you to consolidate a variety of debts and comes with certain benefits. The consolidation loan will have a longer term which will result in lower and more manageable monthly payments. Since your debts are replaced with one loan to service, this simplifies your finances, resulting in less stress. Moreover, it will be easier to avoid non-payment and late payments, which can affect your credit score and result in high interest rates, charges, and even legal problems in some cases. Consolidation is a good opportunity to have overdraft facilities cancelled. You can cut the number of credit cards you hold as well. At the same time, debt consolidation increases the total amount you owe since you will be repaying it back over a longer period of time. Consolidation does not offer the same flexibility as credit cards do, which allow you to borrow as little or as much as you would like to. There is one major problem when it comes to consolidation – borrowers add in yet another lender to their long list. Moreover, if you borrowed so much that you are after more money as a solution, you probably won’t get good terms and low interest rate, even if banks advertise that. These are generally offered to borrowers with a decent credit score.