debt consolidation

debt consolidation is the term for replacing a number of expensive, high-interest debts with a new one at a favorable interest rate. By reducing the rate of interest in addition to the number of loans, the borrower has the chance to pay back credit debt more quickly than before.

The advertisements on television and radio seem ubiquitous, suggesting that if you have too much debt, all you need to do is use debt consolidation to end your financial troubles. Getting out of heavy debt is more complicated than simply taking out a loan, as you actually have to repay your debt to get out of trouble. The right consolidation loan can make it easier to repay bills, as you will have only one monthly payment, but the wrong loan can cost you more money.

There are two ways to borrow money to consolidate your debt; each has its good and bad points. An unsecured loan can be used to repay debt and a secured loan, which must have collateral, can be used as well.

A secured loan is probably the most commonly used tool to combine bills, using collateral that offers a bit of a guarantee to the financial institution that you will repay. The most frequently used types of collateral are homes and vehicles; it's easy to establish a market value for them and they can sell easily should you default on your payments. As a benefit for providing collateral, you do receive some positives - you can likely borrow more money than you could with an unsecured loan, and the interest rate that you pay will almost certainly be more affordable.