Articles => Debt Consolidation
Debt Consolidation Loans
Published on Wednesday, 13th of April 2011 by Fay Tadlas. This article has previously been viewed 133 times and was last read on Friday, 18th of May 2012 at 17:12:57.
If your bills are piling up and you're having trouble remembering who to send what amount and when to send payment every month, you might be able to simplify your life and reduce credit card debt with a debt consolidation loan.
A debt consolidation loan is a loan used to pay off several different accounts, so the loan is the only debt that remains. It simplifies debt, making one payment a month necessary instead of several. Additionally, you could save money with a debt consolidation loan, as interest rates on these types of loans are typically lower than credit card rates.
There are two types of debt consolidation loans: secured and unsecured:
Secured loans
A secured debt consolidation loan is backed up by personal property. Lenders may accept jewellery, boats, vehicles, stocks, bonds, or your home as collateral. It's important to take into consideration the fact that the property offered as collateral could be seized in the case of loan default. If you stop making payments on the loan, the lender has the right to take your property. This makes it particularly important to seriously consider your ability to make payments before pledging something like your house.
Secured loans are often necessary for people with a poor credit rating. As a lender would view this type of individual as a risk, it helps the company cut that risk by making sure there's real property backing up the amount of the loan in case of non-payment.
Unsecured loans
An unsecured debt consolidation loan does not require any collateral, removing the risk of having your personal belongings repossessed by the lender. However, since there is nothing backing up your loan, interest rates are higher than those for secured loans. An individual has to personally assess whether the higher interest rate is worth removing the risk of repossession. If you do not anticipate problems paying back the debt consolidation loan, and you have an expensive item to pledge as collateral, it would save you more money to go with a secured loan.
