Loan consolidation is the act of taking all available loans and paying them off with one giant loan from a single lending institution. Paying off all these loans at once accomplishes multiple goals:
1) It combines all loans into a single payment
2) It ensures you only have one company to work with if you have a problem paying back the loan on any given month.
3) It can lower monthly rates or interest
4) It improves credit
Single payments have several benefits. First, it allows debtors to keep track of all the money they owe and exactly when to make a payment. Some people have loans that are quarterly, monthly and bimonthly, and remembering to pay each one when it is due is difficult for even the most skilled budgeters. Having one single payment reduces errors, which helps keep payments on time thus resulting in less fees and fines over time.
There are a variety of reasons that an individual may run into difficulty paying back a debt. Loan companies, no matter how ruthless, understand this and offer many various options like forbearance or deferment for borrowers that are likely to miss a payment. Lenders want your money, but they also want their money back.
However, when you have to deal with multiple loan companies in order to receive this forbearance, making it possible to forget a company or struggle to effectively contact all of them, a great deal of trouble can arise. By only having a single company you only have one point of contact, making the entire process simple and seamless.
Loan consolidation has another key benefit - it combines all loans of all interest rates, including variable interest rates, and reduces them to one fixed rate. That fixed rate has the possibility of being lower or equal to the average of your current loan interest rates, and since it is not variable, it cannot suddenly jump to a higher rate.
Not all companies offer a lower interest rate than the combined averages (known as the "weighted mean") of your current interest rates, but some do, allowing you to actually save money with debt consolidation.
Finally, Creditors do not like to see multiple debt sources. Consolidating your loans allows you to remove all the additional sources of debt from your record, which will help your credit score increase and make it easier for you to find credit in the future.
Loan consolidation is one of the easiest and best ways to improve your credit score and make paying back your loans an easier process.