Debt consolidation is a service that requires you to take a
low interest loan to pay off other high interest loans. The
aim of the loan is to reduce the monthly payments.
If you have been paying high interest rates on an unsecured
loan, then you can look for a secured debt consolidation
loan that requires you to pledge security collateral
against the loan. It can be a home or an asset of higher
value than the loan amount.
Collateralization automatically reduces the risk for the
lender and hence the lender will be more than willing to
offer low rates. On the other hand, if you default on the
loan, there is always the risk of foreclosure or forced
sale of the asset which you pledged as security in the
first place.
Debt consolidation in paying credit card debt
If you are paying a credit card debt, then you must know
that credit cards have a higher interest rate than even an
unsecured loan. You can always seek a debt consolidation
secured loan by pledging property or a vehicle as
collateral and reduce your monthly interest rates. The
total interest and the cash flow will also be reduced and
it will allow you to pay off the debt sooner than the norm.
But if you are an impulsive spender who spends more than he
earns, then this will not benefit you that much for you
will only increase your credit card balance.
Types of debt consolidation,
There are several types of debt consolidation loans in
which you take one low interest loan to repay several loans
that you might be paying now.
Bankruptcy is one of the debt consolidation loan types. The
rules state that you can repay a part of the loan even if
you are not paying it off completely. The court usually
assigns someone to supervise the payment distribution. You
make the timely payments to the appointee who then pays it
to your creditors.
You can also seek credit counseling services for debt
consolidation. In this you do not take out a loan but use a
third party to negotiate on your behalf for reducing the
interest rates and the monthly payments. You pay the
monthly installments to the counselor who then distributes
it to the creditors. You can once again save on interest
rates here.
Although debt negotiation is not necessarily a type of debt
consolidation, it is considered to be a similar service.
The counselor will set up an account in which you have to
make monthly payments. The money from this account is used
to pay off the creditors. The counselor is better equipped
and has considerable expertise in making negotiations and
you will be able to get much better rates than norm.
Finally, the type of debt consolidation loan that you
choose depends on your personal situation and choice. Make
sure that you understand the pros and cons for each one
before selecting it.
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Debbie Groves is the owner of The Debt Consolidation
People, Inc. which is a premier resource for debt
consolidation information. For more information, go to
http://www.thedebtconsolidationpeople.com
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