Debt consolidation loans are one of the effective solutions of debt management program. The cost of living is increasing day by day and thus making our life more complicated in terms of financial stability. If we try to avoid extra expenses but still we have utility bills, credit card bills, mortgage repayments, etc. There are many fixed monthly expenses that cannot be ignored by you.
Debt consolidation loans are defined as one accumulated borrowing that a debtor borrows from banks or other financing institutions to repay all other small individual debts. It is one of the popular debt option that people are frequently looking for if they are struggling with many individual debts.
Benefits of Debt consolidation loans:
- The interest rate of debtor’s repayment will be reduced.
- Debtor will receive proper & efficient debt management plan from creditors or collection agencies.
- Multiple individual monthly installments will be converted into single monthly payment.
- All the late fees will be eliminated or reduced depending on case.
- It could make you debt free faster.
- All payment collection calls will be handled by debtor’s debt consolidation advisor or solicitor.
- It will significantly improve the overall credit score of debtor.
- Moreover free debt counseling will be offered by these consultancies.
There are basically two types of debt consolidation loans that banks offer in the market. These are secured and unsecured debt consolidation loans.
Secured debt consolidation loans are those borrowings that are backed by collateral. This collateral can be any valuable asset but generally banks consider real property like house. Even they offer large sum on lower interest rates as compared to unsecured loans.
Unsecured debt consolidation loans are not backed by any collateral and impose great risk on lender. Moreover it offer small borrowings on high interest rate and is not easily available in the market.