What it is
Debt consolidation is the process of combining all your debts into one loan. This strategy involves borrowing enough money to pay off your existing debts so you can focus on a single, larger loan.
Here’s a simplified example:
Let’s say you owe P200,000 to Bank A, P30,000 to Bank B, and P20,000 to Bank C.
Through debt consolidation, you can borrow P250,000 from Bank D to clear your other loans.
This way, you’ll only need to keep track of only 1 large loan instead of 3 smaller ones.
What it means for you
One way to consolidate debt is to apply for a personal loan. That loan should give you enough money to pay all your other obligations.
This strategy might help you get out of debt faster if you find a loan with reasonable terms and make sure to pay in full and on time.
It will also lessen the number of creditors you’ll deal with and loans you’ll manage. You might even end up paying less in the long run if your debt consolidation loan charges a lower interest rate than your existing debts.
Keep in mind that you can also end up paying more in interest depending on the new loan’s payment terms. You might also need to pay fees or pre-payment penalties when clearing your existing loans and getting a new one.
Make sure to read the loan terms carefully before signing any agreement. Weigh the pros and cons of consolidating your debt, including any potential financial benefits and convenience it may offer.
