Types Of Debt Consolidation Loans That You Can Avail Of

Debt consolidation process involves grouping together several debts (unsecured) that you have into a single debt and lowering the interest rate on the debt. Now, you can consolidate your debts in two main ways and these are you can do it on your own or else you can also take the help of a debt consolidation company. If you opt to consolidate your debts on your own, you will have two options again. You can either take out a debt consolidation loan or else you can transfer the balance from all the high interest rate cards to a low interest one or to a new credit card offering you 0% on balance transfer. Though balance transfer is popular, many people opt to take out consolidation loan too.

Types of loan consolidation

Depending on the type of loan that you can take out in order to consolidate your debts, you will have two loan consolidation options. That is you can either take out a secured debt consolidation loan or an unsecured consolidation loan.

If you take out a secured consolidation loan, the interest rate of the loan will be low in comparison to the unsecured consolidation loan. As the loan is a secured one, you will have to keep any of your assets s the collateral and in most cases it is your home. So, if you default on this loan, the lender can take away your home in order to get back his money. Thus, you will have to be careful about taking out a secured consolidation loan. You will have to go on maintaining the payments on your secured consolidation loan.

However, if you get an unsecured consolidation loan in order o consolidate your unpaid bills, the interest rate in comparison to the secured loan will be a bit high. However, you won’t be required to keep any of your assets as collateral against the unsecured consolidation loan. Thus, you need not fear losing your asset.

What happens in loan consolidation?

In case of loan consolidation, you are required to take out a consolidation loan, secured or unsecured as mentioned above, as per your affordability and needs. The amount of this loan will be equal to the amount of debt that you owe to your creditors. Consolidation loans are available at low interest rates and so it helps you in lowering the interest rate. As a result, you are required to make only one and that too, a low payment on your consolidated debt.

Thus, you can see that loan consolidation is helpful enough for you to pay off your debts easily enough and become debt free in less time. However, one thing that you need to remember is that you will have to try and make more than minimum payments so that you do not end up paying more on the interest.

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