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Debt Consolidation Loan Basics |
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Debt is a serious issue which concerns many people nowadays. A few years ago many people got several types of loans, and now they simply find it hard if not even impossible to repay their debts. To avoid any serious financial issues caused by being in debt, people can opt for a debt consolidation loan, which will help them become debt-free in a period of at most five years. For many people debt consolidation loans are the only way to get out of debt and start a new, debt-free life. There are two basic types of debt consolidation loans: secured and unsecured one. Both of these types have advantages and disadvantages, one type might be good for a certain group of people, while others may prefer the other type. It is not a question of which of the two is better, it is rather which of the two types is better for a certain person? Both of these debt consolidation loans offer a positive outcome, but their methods are slightly different. Debt consolidation loans (both secured and unsecured ones) work in a similar way: this loan type is taken out to pay off a person's other existing debts. It offers a longer time period, lower interest rates, which mean that the person will have to pay a smaller amount of money each month, and the convenience that instead of sending many checks to many lenders, the debtor will have to send only one check. This is an advantage too; because it is easier to keep in mind only one single date, and one amount of money than keeping in mind several lenders and several amounts. With the help of a debt consolidation loan a person will have to pay a smaller amount of money each month, and the outcome is that in usually five years the debtor will become debt-free. The secured debt consolidation loan is designed for people who own their homes, or any other asset, because they will have to put an asset as collateral. People, who decide they need such a loan, should first think about what they want and can offer as collateral. The question is a very important one because it has to be taken into account that in case of not payment the collateral may be lost. This is a serious issue, and people do not want to lose their assets, regardless what kinds of assets we are talking about. After the person had decided on the collateral, the next step is to look for a lender, which accepts it. There might be only one lender, but there might be many lenders. In case the person finds many lenders, he should shop around. This means that people should not fall for the first offer; they should compare loan repayment periods and the interest rate of several lenders and choose the one which fits their needs. When the person decided upon the lender, a contract will be signed, as in case of any other loans. The advantage of a secured debt consolidation loan is that the person will get a bigger amount of money, the term is for a longer period of time and the interest rates are quite low, all these are possible because of the collateral. Unsecured debt consolidation loans do not require collateral, and this makes things change a little. Although they serve just like the secured ones, they help people get out of debt, they are designed for people who owe a somewhat smaller amount of money. Due to the lack of collateral the amount of an unsecured debt consolidation loan is lower; the interest rates are somewhat higher than in the previous case and the time period is shorter. This is not necessarily a disadvantage if we compare the two loan types, because the first one is designed for those who owe a bigger amount of money and are incapable to pay off their debts in a period of about five years, while the latter one is designed for those who owe a smaller amount, and it promises to get them out of debt in a period of about three years. Or, if we look at it from another point of view: the secured loan is designed for home owners, while the unsecured one is designed for people who do not won any valuable assets. It is not a question of which one is better, but which one is good for a special group of people. In this case too, the offers will vary from one lender to the other, so people should shop around and choose the lender which offers the lowest interest rate and (according to the person's needs) longer time period. Secured and unsecured debt consolidation loans are available for most people, even for those with bad credit score, and bad credit history. These people should be prepared that they will have to pay a higher interest rate than those with a good credit score. Although this is the policy of many lenders, even a person with bad credit history can find good deals if he shops around before signing the loan. Both of these loan types are efficient, and if people make the payments regularly, they will be debt-free within a short period of time. Making the payments every month is very important, especially in case of a secured debt consolidation loan; because non payment can lead to very serious problems, people may even lose their homes because of this. People should realize that debt consolidation loans alone will not get them out of debt, they are only tools; and by using the right tool, a person can become debt-free. Besides paying the amounts regularly, people should change their shopping habits, and try to save some money instead of spending more than they can afford. Without a serious change in their lifestyles, they will soon find themselves in the need for another debt consolidation loan. Disclaimer: This site is not , nor should it be taken to be, legal, financial or other professional advice. It merely provides a generalized guidance and generalized information only. Consult a financial advisor or an attorney to discuss any legal or financial issues involved with credit and debt decisions. |
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