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A debt consolidation loan is a single loan (generally from a financial institution) that allows you to repay your debts to several or all of your creditors at once. You are then left with only one outstanding loan — to the financial institution.
In addition to streamlining your debts into a single payment, a debt consolidation loan may also offer you an interest rate that is lower than that charged by your creditors. This saves you considerable money on interest charges. This option can be especially attractive if you have outstanding debts at a relatively high rate of interest (for example, those charged on some retail store cards or credit cards). In most cases, I will settle all of these debts for you, and in return the only monthly payment you will have to make will be to one financial institution.
This option may be suitable for debts such as those relating to credit cards, public utilities or other consumer loans. However, not all debts can be combined into a consolidation loan — a mortgage cannot be included, for example.
In order to qualify for a consolidation loan, a consumer usually needs to have an acceptable credit rating and sufficient income to demonstrate that they will be able to make the monthly consolidation payment, in addition to paying for their regular monthly bills and expenses.