Debt consolidation refers to a type of loan offered by financial institutions to help individuals pay off all of their debts. There are a variety of criteria one needs to fulfil in order to qualify for debt consolidation such as proof that the lender will be able to afford their repayments. Criteria are specified by the specific financial institution offering debt consolidation. These institutions may also place a variety of obligations on the debtor which should be researched prior to agreeing to the terms of debt consolidation.
Debt consolidation can be used by people who are finding it difficult to deal with their many creditors and may find it easier to deal only with the institution that gave them the debt consolidation for loan repayments. Once a debt consolidation has been approved and the parties agree on the terms, the financial institution can pay the full amount owed to the different creditors into the account of the lender.
There are financial institutions that would prefer to pay the debt consolidation loans directly to the various creditors. The financial institutions may also then impose on the lender that they may not take out any other debt until they have finished the debt consolidation repayments. It is important that people understand the terms of their debt consolidation as lower interest rates offered may equal to more money as it accumulates in the long term.