How does debt consolidation work?

Debt consolidation is characterized by “merging” all debts into one, enabling the borrower to pay it off easier. Essentially, your credit turns into a separate loan with once-a-month payments. Right here, we are going to talk about the advantages and disadvantages of that type of debt refinancing.

Let’s begin with the disadvantages:

  • Past due charges. Past due charges, along with various other fees will be added to the sum you already need to pay off provided you fail to pay on time.
  • It takes longer. Normally, it takes two to four years to settle it.
  • Bad credit score. This type of refinancing affects your credit score in a negative way.
  • Bad credit report. All info regarding you not covering the debt in full will remain on your credit history for over five years and that will make it borderline impossible for you to obtain a loan from other lenders.
  • More extra fees. The debt consolidation companies commonly charge a rather large fee for their services.


  • All in one. It’s easier to manage your budget when all of your debts are rolled into a once-a-month payment.
  • Lower interest rate. Normally, interest rates for loans are somewhere between 15% and 20%. With a suitable debt consolidation option, you could receive a 10% (or less) interest rate.
  • Ability to pay it off faster. Due to lower interest rate, you there’s no risk of sinking deeper into debt.
  • Avoiding a financial disaster. Despite all the cons, all of the points mentioned in the Disadvantages section will aid you to prevent a full-fledge financial disaster, i.e. you won’t go broke.

It should also be noted that there are various different kinds of debt consolidation, every single one of them comes with a different set of advantages and disadvantages. The most popular and most reasonable choice is personal loan options.

The reasons for this option’s popularity are simple. You get lower rates and convivence. For example, you can apply for California Payday Loans online to get a low fixed-rate loan with no collateral.