Debt Consolidation

Free access to lending programs leads to the fact that people have faced force majeure take several loans at once. Banks and non-banking institutions offer loans with different repayment terms. Loan amounts, interest rates, repayment terms may differ.

An increase in the payment burden due to the presence of several loans provokes untimely debt repayment due to banal forgetfulness or temporary financial difficulties. To avoid late payments and maintain a good credit history, you can use a debt consolidation option.

What is debt consolidation?

Debt consolidation is a set of banking measures to combine several loans into one. The ultimate goal of using consolidation is to reduce the burden on the payer.

Important! After consolidation, the loans are combined. Instead of several small payments, the debtor undertakes to make one monthly payment to pay off the debt.

Banks consolidating loans can offer:

How are loans consolidated?

Debt consolidation is not always included in the list of services provided by financial institutions.

Some banks use loan consolidation as part of the refinancing procedure. This method of debt management allows you to revise the repayment terms of several loans, simultaneously combining them into one loan with an updated repayment schedule.

Important! Debt consolidation is available to adult clients with an impeccable reputation and stable income. The bank has the right to demand identity documents, proof of income and proof of employment.

Types of debt consolidation

You can consolidate debts that have formed as a result of the use of credit cards, personal loans or payday loans. As a rule, a merger of no more than five existing obligations is allowed. The parties agree on the terms of the new deal individually without involving the original creditors.

Types of consolidation:

As a separate service, consolidation on favorable terms can be offered by a bank that works with a client under several lending programs.

Preparing for consolidation

Before agreeing to a proposal to consolidate debt or deciding on such a step, the borrower needs to carefully prepare. Reckless use of banking services can significantly worsen the financial situation.

The borrower is recommended to:

The decision to consolidate loans should be made taking into account financial capabilities and based on information about the current financial situation. To avoid falling into an even deeper debt hole, the borrower needs to think about the risks that he or she will have to face after consolidation.

Before applying, you need to consider:

1. Feasibility of consolidation. The new loan should be more profitable than the previous loans;
2. Requirements for collateral;
3. Terms of lending, in particular rates, fees, commissions and monthly payments;
4. Information about the bank and the debt consolidation program chosen by the borrower;
5. Amounts of additional fees in case the consolidation option is paid.

A borrower should also study the reviews and check the creditor’s reliability ratings. The information about banks involved in consolidation loans is available online.

Important! You’d better not do business with organizations that have many negative reviews from experts and consumers. Only reputable financial institutions should be involved in cooperation.

How to combine loans into one: instructions

After completing the preparatory work, the borrower can proceed directly to the consolidation. The procedure begins by submitting an application based on the sample of the selected bank. In the application, you must indicate your passport data, information about existing loans and a phone number for feedback. Some lenders also ask you to explain the reason for seeking help.

Standard debt consolidation algorithm:

  1. Search for a profitable loan product, study the terms and conditions;
  2. Submit an application and the necessary documents to the selected credit institution;
  3. Wait until the lender makes a decision and notifies you about further actions;
  4. Clarify all the nuances of the transaction and sign of a loan refinancing agreement;
  5. Get funds from the new creditor to pay off previous debts.

Consolidation steps may differ depending on the bank and the type of procedure chosen. For example, if you are using collateral, you will have to provide information about the property selected to secure the transaction. In any case, the debtor will be forced to pay off one large loan instead of several small loans.

Why would I not be approved for debt consolidation?

To increase the likelihood that your request will be approved, you should look at the reasons for the rejection. As a rule, applications are rejected due to typos or non-compliance of the client with the bank’s requirements. When you corrects the mistakes, the application can be resubmitted.

Pros and cons of debt consolidation

Consolidation benefits:

Loan consolidation has both positive and undesirable consequences. To reduce the risk of force majeure circumstances provoked by inappropriate consolidation of loans, you should carefully calculate future costs, taking into account even the smallest nuances of the procedure.

Cons of consolidation:

It should be noted that funds are not handed over to the borrower during consolidation. The bank transfers the agreed amount to the accounts of former creditors in order to avoid fraud on the part of clients. In turn, the loan agreement does not provide for the payment of compensation for early fulfillment of obligations.


Any change in the terms of the original loan entails risks. Consolidation is no exception. However, a competently executed loan consolidation will allow you to find a real way out of a difficult financial situation. The prevalence of advantages over disadvantages contributes to the growing popularity of this banking service among the population. Consolidation of several loans will allow borrowers to get rid of problem liabilities with minimal losses and maintaining an impeccable reputation.