Debt consolidation



Please eli5 how debt consolidation works and how it affects your credit. is it a bad thing?

In: Economics

Some loans have higher interests rates than others, often if you consolidate the debt you pay a much lower interest rate on the loan, but it often needs to be secured against a high value item like a home, so if you default on the debt or miss lots of the payments you can lose the house.

Basically instead of having 5 different loans with 5 different lenders at 5 different interest rates, a debt consolidation company pays off all those 5 loans and you now have one loan with one rate with the debt consolidation company. You do need to secure it with collateral in most cases and you may or may not get better terms. But at the end of the day, it becomes a lot easier to manage.