A Complete Beginner’s Guide on Debt Consolidation Loans

Written by Shefali Onawale

Someone, somewhere said a thing... but none of us remember that because they didn't write it down! From writing in my personal diary to writing blogs the world could relate to, its been quite a journey and I wish to walk some more, preferably making sojourns along the way.

June 29, 2021

If you’ve been a student or have recently graduated and are looking for ways to settle in life, you must be aware that personal loans play a huge role in helping you meet your financial requirements. You may also find yourself in midst of numerous financial obligations in your journey towards a settled way of life. This is where debt consolidation loans will come to your rescue. 

Debt consolidation loans have been introduced as a method to repay debts and loans by taking up a personal loan that can be used against all your debts collectively. In order words, you will be able to merge all your existing debts and loans and be able to repay them using a personal loan. 

The following infographic will help you understand the difference between taking separate personal loans vs. debt consolidation loans. 

What Is The Importance Of A Debt Consolidation Loan

As we stand in the first half of the 21st century, we can look back confidently and say that there exists plenty of ways to become financially sound and strong. Today, one of the wisest options to help you attain the status of being financially healthy is by opting for a debt consolidation loan. The two benefits of this type of loan are that firstly, you only require single-tracking for all your past loans and secondly, debt consolidation loans come with highly affordable interest rates. 

This type of loan is suitable for you if you require immediate loan disbursement. This is because debt consolidation loans may be disbursed as quickly as within 30 mins to 72 hours giving you an immediate availability of a personal loan. Debt consolidation loan interest rates are highly attractive and the repayment is flexible. This type of loan is highly recommended if you are looking for loans with low requirements and eligibility criteria. 

What Is The Working Of A Debt Consolidation Loan

In the debt consolidation process, you resort to various ways of financing your debts and liabilities. Debt consolidation allows you to merge debts into a single liability and pay them off. Payments are then made on the new debt until it is paid off in full. 

You can apply through your bank, credit union or directly with your credit card company for debt consolidation. It is important to note that debt consolidation loans will not erase your original debt. Instead, it will simply transfer it to a different lender or type of loan. 

There are two broad categories of debt consolidation loans: secured and unsecured loans. 

Secured Loans 

Secured Loans are usually offered against collateral. This may be a car, a house or anything valuable and equivalent to the value of your borrowing. However, if you are searching for loans without collateral, UniCreds offers some options that may benefit you. 

The risk of default tends to be relatively low as the lender has much more to lose by neglecting his financial obligations. Since a secured loan carries less risk to the lender, interest rates are usually lower than for unsecured loans. 

Unsecured Loans 

As the name implies, unsecured loans require no collateral or other backing. Lender’s offer funds solely based on the customer’s creditworthiness. These are also called signature loans and the rate of interest is typically higher for unsecured loans as compared to secured loans. Also, credit score and debt-to-income requirements are usually stricter for these types of loans, and they are only made available to the most credible borrowers.

Looking for education loans without collateral? All you have to do is fill the form on this page! 

Features Of Debt Consolidation Loans 

Merging Existing Loans & Debts 

It is a common misconception that debt consolidation loans are a way you can reduce your past debt obligations. Rather, these loans – be it secure or unsecured, will help you repay your debts by merging them together. This will help you track your costs against the loan from a single place and make it easy for you to repay the loan. 

You Cannot Borrow More During The Consolidation Process 

The reason why a debt consolidation process was established was to streamline the repayment process. This means taking a stock of your present liabilities and assessing your credit worthiness to pay it back. As a result, while you are in the process of a loan consolidation, you will not be allowed to make any more borrowings and may not be eligible for any type of external loan. 

Low Interest Rate & Single EMI Payment  

The debt consolidation interest rate can be an affordable option if you are looking to consolidate your loan under a personal loan. If you are looking for student loan consolidation, you must do your research about the best interest rates before signing a loan agreement. Moreover, you will not be required to keep a track of separate EMI payments (if that is what you have opted for). You can consolidate your debts with a personal loan. Doing this will allow you to make one EMI payment every month, thus making repayments a whole lot easier.

Thank you for reading this blog on Everything You Need To Know About Debt Consolidation Funds. If you are interested in reading more such articles related to student finances, the following should be of interest to you: 

  1. Best 5 Ways To Pay For Law School
  2. Hybrid Loans: What Is It And When Should You Get One?
  3. Types of Education Loan In The US – Which Is Best-Suited For You?


1. Should I consider a debt consolidation loan?

Combining various loans into a single loan decreases the number of payments and interest rates you must deal with. Consolidation can also help you enhance your credit by lowering your risks of skipping a payment or paying late.

2. Are debt consolidation loans easy to get?

The full decision and funding process should take around 7 business days to complete. Depending on the lender and your unique situation, your wait could be as little as a week or as long as a month. You’ll pay off your creditors with the money you get from your debt consolidation loan.

3. Can you pay off a debt consolidation loan early?

You have some additional cash and would like to pay off your personal loan sooner rather than later. This will save you money on interest and give you a few additional bucks each month to spend. Paying off debt is generally beneficial to your money and credit.

4. How do debt consolidation loans work?

A debt consolidation loan is one option for debt refinancing. Once your loan application is granted, you’ll use the money to pay down the sums on your existing debts. You’ll apply for a loan for the amount you owe on those debts. After that, you will gradually pay off the new loan.

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