Consolidating various accounts and bills you may have is a good way to reduce your monthly payments, and also a way to save on the interest you may be paying.
Think of a consolidation loan as an umbrella loan. You are covering many smaller loan or accounts all under one loan or umbrella.
By consolidating the accounts together as one account, you can decrease your monthly outgoings, which can free up money to put into savings, or to be used to pay off the accounts at a quicker rate.
A debt consolidation loan is a loan that is taken out to pay off many smaller accounts. It is usually used to consolidate credit cards, or other accounts that may have a high interest rate.
Many credit cards have interest rates of 20%, 25% or even higher. If you have a balance on a credit card and only pay the minimum monthly payment, which can be 2.5% to 3% of the balance, and the interest rate is over 20%, you could be paying for over 10 years or more to pay the card off.
The basis of a debt consolidation loan is to consolidate these high interest rate accounts, such as credit cards, into one (1) monthly payment. And one (1) monthly payment can make life much easier.
Some people spend hours each month not just deciding which bill to pay, but when to pay them. Bills are due at different times of the month, and if you are struggling to pay one, then you need to juggle the bills.