What is debt consolidation?

What does debt consolidation mean, and how does debt consolidation work?

We compiled everything you need to know about consolidating debts, and getting a debt consolidation loan, to help you decide if it’s right for you.

What does debt consolidation mean?

Debt consolidation is a way of refinancing debt. It involves taking out a new loan or line of credit large enough to cover the debts that someone owes. Then, their outstanding debts are paid off and the person begins paying the new loan or line of credit, typically at a lower rate or with an easier payment schedule. Consolidating debt is a great way to get back on track with your finances and helps to rebuild credit.

So, what is a debt consolidation loan? It’s just like a regular personal loan, but the money from that loan is used to pay off debt. Since all debts are being paid off, they are essentially combined or “consolidated” into the new loan.

A debt consolidation loan can be used to pay off credit card debt, past due bills, car loans and more. When you pay off debt with a consolidation loan, you only owe money on the new loan, helping to simplify your debt repayment schedule and reduce interest charges, particularly if some of your old debts were overdue.

How does debt consolidation work at Fairstone? It’s simple:

  1. Request an online loan quote to find out how much money you could qualify for – it only takes a few minutes and won’t impact your credit score.
  2. If you’re interested in your quote, you’ll receive a call from a Fairstone Lending Specialist. They’ll recommend a loan solution and debt repayment plan that suits your needs and budget.
  3. Visit your branch to finalize the loan application and have your debt consolidation loan as soon as today. 

Why do people get a debt consolidation loan?

People get a debt consolidation for several reasons:

  • A debt consolidation loan simplifies multiple bills and debts into one monthly payment, making it easier to manage debt repayment
  • A simplified payment schedule can help you pay off debt faster and, as a result, save money on interest
  • A manageable debt repayment schedule allows you to make regular, on-time payments, which demonstrates positive payment behaviours
  • Overtime, a positive payment history may help you rebuild your credit 

What is the best way to consolidate debt?

The best way to consolidate debt really depends on your goals. Are you looking to simplify your payment schedule? Choose monthly payments – you’ll be less overwhelmed since you only have to remember one deadline a month. Are you interested in paying off your debt faster? Choose bi-weekly payments and a shorter loan term.

The goal of a debt consolidation loan is to eventually be debt-free, so it’s important to stay in control of your new loan. No matter your payment schedule or loan term, consider setting up automatic payments – the money will come out of your bank account on the day you choose. With automatic payments, you don’t have to worry about late or missed loan payments, helping you stay on track and pay off your consolidation loan on time.

Should I get a debt consolidation loan?

If you have multiple outstanding bills and debts, a debt consolidation loan may be right for you. Consolidating your debt is especially helpful if you struggle to keep track of your payments. If you’re considering a debt consolidation loan, try Fairstone’s free debt consolidation calculator. Our calculator shows how much you could save by paying off and consolidating multiple bills into one payment.

How does a debt consolidation loan work?

The first step to obtaining a debt consolidation loan is to complete an application (you can do so here – it’s quick and won’t affect your credit score) to see if you qualify. You may have the option of taking out a secured or unsecured debt consolidation loan. A secured personal loan requires you to be a homeowner, and allows you to access more money and a lower interest rate. However, an unsecured loan allows you to get your money sooner since it’s a quicker fulfilment process. After you decide whether you will secure your loan or not, and are approved, you can take the money from the loan and pay off your outstanding debts. Once you’ve paid off your debts, you’ll only have to make payments on the consolidation loan.

Interested in applying for a consolidation loan? Learn more about how a debt consolidation loan can simplify your life.

Try our free loan quote! In just a few minutes, we’ll tell you how much money you could qualify for and what your payments might be. No obligation and no impact to your credit score.