Loan Lingo – Consolidation
Channel: The Financial Literacy Course
Date: 2021-01-14

Consolidation is when you combine multiple loans into a single loan. Consolidating your loans has some advantages and disadvantages. A benefit includes simplifying your finances, so you have fewer bills to remember to pay. If you are in financial distress, many consolidations will allow you to increase the term of the loan, thus trading a lower monthly payment for a higher cost of the loan and a longer time until becoming free of debt. Consolidating also has some consequences. If you are banking on the promise of loan forgiveness, moving out of an approved loan may make you ineligible. 

You'll often hear many people offering debt consolidation loans to reduce the interest you are paying on credit card debt. Although this may be true mathematically, nothing is stopping you from doubling your debt if you don't fix the underlying spending problems first.