Sep 26, 2006

Debt consolidation, simply explained

Debt consolidation simply means obtaining a loan to settle all other outstanding loan and end up servicing one loan instead of many others. The advantage of debt consolidation is apparent for those who find themselves swimming in a pool of debt with high interest such as credit card debt or personal loan debt where interest could be in the region of 1.5% percent per month or close to 24% per annum.

The cheapest form of loan one can obtain from the financial institution nowadays is the housing mortgage loan and with the increase in property price over the years, it is most likely that those with property could refinance their property at interest of say 6% to 8%, on top of that the financial institution offer zero moving cost where loan documentation and legal fees are absorbed by the bank. By obtaining additional financing from the property loan to settle the all other debt, one could potentially save in interest payment and allow a person to end his debt earlier. This type of loan will enable one to pay off all of his debt with one payment each month, rather than by having to make several monthly payments. Moreover the loan available for property come with a lot of flexibility where one can choose to pay back more in monthly payment if extra fund is available and hence even further cut short the time frame for one to get out of debt.

By obtaining a debt consolidation loan, one will enable himself to pay off all the debt he has incurred and only have one left over, which will be the loan.

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