A debt consolidation plan generally refers to the act of taking out a new loan to pay off other liabilities and consumer debt at a certain time. Multiple debts are combined into a single, larger debt, such as a loan, usually, that has more favorable payoff terms—a lower interest rate, lower monthly payment, or can be both.
How does a debt consolidation plan work?
A person may have a burden of various loans and credit card payments or any kind of repayment that has to be done to a certain bank. A debt consolidation plan is a plan that allows that person to combine all the loans at the credit card payments into one single loan at a lower interest rate and then, paid back to the bank. Now, the question arises what is the advantage of giving a single loan over multiple loans? The answer is it depends. A single loan has lower interest rates than multiple loans and can lose the burden of a person a little bit.
Advantages of the debt consolidation plan
- This helps to lose the burden of a person and combine just every loan to a single loan.
- Provides one single interest rate which is a lower rate than all the multiple loans he or she has.
- One does not have to pay multiple loans and can repay all the money that he or she will store back in one single loan.
These consolidation plans are not available in all banks across the world. However, some banks provide this advantage to the customers. India, on the other hand, has this feature because of the high rate of rural areas and unemployed people across the country.