Borrowing has become a natural part of getting through life for most people, But sometimes we tend to over borrow and find ourselves stuck with a mountain of debt that we struggle to pay off.

It is not uncommon to have multiple loans and find yourself wondering which one to service first. However, there is another approach that may help you pay off your debts without having to worry about delaying payments to some of your creditors, and it is called a debt consolidation loan.

What is a debt consolidation loan?

A debt consolidation loan refers to the consolidation of multiple loans into one loan so that the debtor pays it as one single loan through monthly installments. This allows the debtor to cover pay off the multiple debts easily since all the creditors receive a share of the monthly repayments. Debt consolidation loans are also designed to help make the repayments easier for the debtor rather than paying all the creditors one by one.

Debt consolidation loans are mainly used to pay off loans such as medical bills, payday loans, and credit cards. One of the advantages of choosing a debt consolidation loan is that it comes with lower monthly payments and lower interest rates.

Lower payments and lower interest rates are a noteworthy win for any debtor. It also makes it easier and possible for the debtor to clear the debts faster. Debt consolidation loans, therefore, have their advantages, but there are also some disadvantages involved.

Advantages

• It makes it easier for the debtor to make payments on time.
• Interest made in the process can be considered a tax deductible.
• They usually have lower interest rates.
• Monthly loan payments are constant.
• The debt exists as one collective debt rather than multiple ones.

Disadvantages

• Debt consolidation loans may attract some fees.
• The debtor is required to go through thorough inquiry through their credit report. Your credit score may take a hit albeit temporarily.
• It may require the debtor to provide collateral in some cases.
• Debtors that have poor debt management habits may be lured into more debt by the lower interest rates.