The idea of being debt-free feels more like a dream than a possible reality for you. However, two words can quickly change this: debt consolidation. Of course, it’s easy to confuse debt consolidation with debt refinancing, which is not the same thing, according to Nationalpartners.org, a leading provider of debt consolidation services. Here is a rundown on the difference between debt refinancing and debt consolidation.
Both debt refinancing and debt consolidation are methods designed to make dealing with your debt easier. However, debt consolidation services involve turning multiple debts into just one debt. You can achieve this using various financial instruments/approaches, according to Nationalpartners.org.
Meanwhile, debt refinancing involves replacing existing debts with new debts that carry lower interest rates. For instance, let’s say that you are an entrepreneur with a loan. You then decide to secure another loan with a lower interest rate to pay off your first loan. In this situation, you have taken advantage of debt refinancing.
As a general rule of thumb, debt refinancing services and debt consolidation services are not mutually exclusive. That’s because you could easily obtain a consolidation loan and then refinance it. Likewise, it is possible to consolidate debts that have been refinanced. You could refinance every single one of your debts and consolidate them.
Nonetheless, you must understand that debt refinancing and debt consolidation are two completely different concepts. Also, both approaches to eliminating debt offer their unique benefits depending on your particular situation.
For instance, debt consolidation may be best for you if you have several small debts—for example, debt on credit cards—with various lenders. That’s because debt consolidation services can help you to turn your debts into one affordable and manageable debt. Meanwhile, debt refinancing is most appropriate for making a single auto loan or home loan more manageable long term.