I am sure you are probably asking yourself what is debt consolidation? Well debt consolidation is simply a way to refinance your debt by taking one loan to pay off many others. Ignoring your debts will not make them go away so the sooner you service them the better. Debt consolidation is a pretty sweet deal since there is usually lower payment and lower interest rates on the debt. Furthermore, if you are sinking deep in debt, it helps you get out of debt faster with our free debt services. It protects your credit rating in that the single loan helps pay your credit card debt in full. Debt consolidation loans take two forms secured and unsecured loans.
Secured debt consolidation loans entail taking a larger loan secured against an asset such as your house, to pay smaller loans. Your personal possessions will be used as collateral in the event you fail to repay your loan. The pros of secured debt consolidation loans are, they are easier to obtain, higher amount is available to borrow, usually have lower interest rates and have the possibility of deducting taxes on the interest rates. This secured loan is to be applied for after you put much thought into it. This is because it puts you at the risk of losing your possessions if you default in payment. The loans also have longer repayment terms, while this may be convenient for the borrower it also means that there is a higher cost of interest accumulated over the repayment period.
Unsecured debt consolidation loans do not require you to provide any security to the lender. They mainly depend on your credit history. The reason why there is such a high standard of requirement for unsecured loans is because loans are such a high risk for the lender to lose money. The benefits of such loans are there no asset risk involved and have a shorter repayment term, translating to lower total interest cost. However, unsecured loans are harder to obtain, have high interest rates, are limited in amount one can borrow and lack tax deduction benefits.
If you are now considering to take up a debt consolidation loan, here are some helpful tips for you. First do ample research on your possible lenders. Banks and Credit Unions have different interest rates and it is better you find the most affordable one. Secondly, work with a budget, before you sign up for your income and expenditure achieve a realistic monthly payment for the loan. Finally, make the loan your first priority. Debt consolidation does not settle your debts but remedies your situation so when still repaying the loan do not rush to sign up for new credit cards as this will plunge you into more debt.