Overwhelming debt is a problem many individuals are experiencing, yet help is available. A person may choose to file for bankruptcy, default on unsecured loans, work with creditors to come to a payment arrangement, or obtain a debt consolidation loan to resolve the debt. Many find a debt consolidation loan is their best option for a variety of reasons. Following are some facts about using this method to achieve debt resolution.
No More Debt?
Unlike bankruptcy, debt consolidation loans aren’t designed to erase a person’s debt. The purpose of the loan is to bring all debts together and allow the borrower to make one monthly payment as opposed to many. This not only helps to make the debt more manageable, it may also lower the amount of interest the borrower pays. This depends on the current interest rates on the debt and the interest rate on the loan.
Secured or Unsecured?
People need to understand that credit card debt is unsecured. Some consolidation loans are secured, however, which means a person puts up collateral to obtain the funds. In the event a person defaults on a secured loan, the collateral is then taken to repay the loan. Borrowers need to decide if they wish to put up their house, car or other assets to pay off their credit card debt, although many debt consolidation loans are now unsecured.
Is Debt Consolidation Credit Counseling?
People often use the term credit counseling when they are actually taking about debt consolidation. These are two separate methods of dealing with overwhelming debt, however. Debt consolidation brings existing debt under one umbrella, leaving the borrower with one loan and one monthly payment. Credit counseling, in contrast, looks at a person’s overall financial situation to determine where changes need to be made to help the person get out of debt and stick to a budget.
People who wish to know more about debt consolidation may obtain additional info here. Although a debt consolidation loan is of benefit to many individuals, it is not the right option for everyone. Only when a person has all of the facts about the different solutions currently offered will he or she be able to make an informed decision as to which is right for their unique situation.