Debt is a sum of money that is owed or due by someone to some another party. Also the money to be paid back is generally higher than the money you borrowed because of some rate of interest applied on the borrowed sum.
Now what is Debt Consolidation?
In simple words Debt Consolidation is going for another loan to pay the existing loan.
Technical definition says that Debt Consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. Refinancing means replacement of an existing debt to be paid with another one.
- Sometimes it is done when you are near the last date of paying your existing loan. In this case you pay the existing loan and for the new loan to be paid back you get extra time.
- Or when a new loan scheme offers less rate of interest than your existing loan scheme, then debt consolidation is advantageous.