A loan consolidation allows you to take out one large loan with the intent to pay off a group of smaller loans. This allows many people to pay off debt faster and at a lower interest rate than they would if they paid each loan separately. A consolidation loan makes the debt recovery process simpler for two main reasons.

First, instead of having to worry and stress over multiple payments at different interest rates that need to be paid at different times in the month, a consolidation loan only requires one bill at one interest rate that only needs to be paid once a month. When a debtor takes  out a loan from a debt consolidation company, the money from the consolidation loan becomes the debtor’s sole monthly payment, and the company takes care of the rest. If it’s a struggle to stay on top of multiple loans or lines of credit, then consolidating your debt into one simple loan might be the right solution for you.

Second, not only does loan consolidation relieve the stress of having to pay multiple bills each month, but it typically can secure you a lower interest rate for the entirety of your debt. In order to understand how consolidation can save you money, it’s important to understand the two basic types of loans. First, a secured loan is one taken out with the assurance of some collateral–typically a car or a house. Because the bank has some guarantee of recouping their losses if you default on a loan, interest rates on a secured loan are typically low. An unsecured loan is one that does not have any kind of collateral and thus usually carries a much higher interest rate. When consolidating debt, it’s possible to to take multiple unsecured loans and consolidate them into a secured loan with a much lower interest rate. Furthermore, many loan consolidation companies provide discounts for the amount of the loan. When you’re looking for a consolidation loan, make sure you shop around for the best deal.

Because of these basic characteristics, loan consolidation is usually ideal for those looking to pay off credit card debt. Credit cards typically carry a high interest rate, typically higher than even an unsecured loan. By taking these high interest rates and replacing them with lower, and many times discounted, rates, the process of paying off your debt becomes significantly easier.