Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.
A consolidation loan can sometimes lower your monthly payment, and that can give you enough breathing room to get back on track.
The reason this can be helpful to people with a lot of debt is that it can solve three of the worst problems you face: 1) High interest rates Some types of debt (particularly credit cards) can have extremely high interest rates – up to 25% or more.
If you’re in that kind of situation, there’s a good chance your debt will grow faster than you can pay it off.
One is to consolidate all their credit card payments onto one new credit card – which can be a good idea if the card charges little or no interest for a period of time – or utilize an existing credit card's balance transfer feature (especially if it's offering a special promotion on the transaction).
Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.