The Inside Story Of Debt Consolidation

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/