What Is “Debt Consolidation”?

Debt consolidation refers to taking a loan to pay off many liabilities and consumer debts which are usually unsecured. Some debts are combined into one massive debt which has favourable terms of pay off. It includes lower terms of interest or small monthly payments or both at a time. Debt consolidation can be used by consumers to deal with student loan, credit card debt and several other obligations. Debtconsolidationtalk.com provides a deep insight into debt consolidation and provides a clear picture of it.

How is Debt Consolidation done?

There are various methods of debt consolidation through which consumers can combine massive debts into one payment. There are several methods for debt consolidation, as follows:

Consolidate all credit card payments into one credit card

It is a form of consolidation in which all the credit card payments are consolidated into one new credit card. It is too favorable if the interest rate is low.

Home Equity Loans

Home Equity Lines of Credit or Home Equity are also a type of consolidation. It has a feature of deductible interest for the taxpayers and borrowers.

Consolidation of Federal Government

The federal government also offer debt consolidation which is usually in the form of student loans.

Types of Debts

There are two main types of debts which are categorized by the nature of securities against loans. Debts are sub-divided into two categories as follows:

Secured Debt

Secured debts are those which are backed by the borrowers’ assets. These assets include a house, a car, or any other asset which operates as collateral against the debt.

Unsecured Debt

Unsecured debt is the loan which has no asset to serve as a guarantee against the loan. It is more complicated to obtain. It has high rates of interest as compared to secured loans, and the interest rates are fixed.

A big chunk of loan that is used to pay off the smaller pieces of credit is the practice of debt consolidation. Creditors offer debt consolidation because it has more possibility of collection from a debtor. Debt is not eliminated through debt consolidation, but it is transferred to another lender. Experts say that debt consolidation is more beneficial for those who have multiple debts.

 

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