Debt consolidation is the process of taking a new single loan to pay off all your existing loans thereby leaving you with just one monthly payment rather than several.
Debt consolidation is usually opted for by individuals who are repaying several debts with several banks such as a Student loan, personal loan, credit card bills etc that aren’t tied to an asset (Unsecured).
Types of Debt Consolidation:
Debt Consolidation through Secured Loans
One of the options is to consolidate all your unsecured debt to one secured debt by taking a Mortgage loan, Loan against property, Loan against your car, equity, Gold, Life insurance policy, cash value etc. The advantage of going with secured consolidation is that you will have to pay a lesser rate of interest. Because the loan is secured, it is more affordable and if it is against real estate you might also get tax deductions. Secured loans are advanced easily as they are less risky.
Debt Consolidation through Unsecured Loans
This is a good option if you don’t have or don’t want to pledge your collateral and it is quite common. Many banks offer unsecured debt consolidation with lesser rate of interest than usual but higher than secured loan. Do check with the bank if they can provide you any offers such as low interest rate or no interest rate for first month or if they have any other offers for the company you work for etc. The benefit of unsecured consolidation is that your collateral is not at risk.
Are you considering Debt Consolidation?
If yes, begin the process with debt counseling. There are several agencies which are happy to help you in this situation. They will assess your complete financial situation, your income, current debt burden; other expenses etc and suggest if debt consolidation is a good option for you.