Types of Debt Consolidation Loans

With debt becoming an ever increasing aspect of life, many find themselves either over burdened with debt or that they simply have too many bills to manage at the end of the month. Fortunately, a debt consolidation loan may be able to help.

A debt consolidation loan is a type of loan designed to cover all of your debt. Essentially, a debt consolidation loan merges all of your current debt in one convenient loan. For you, this means one single payment each month instead of several. In some cases, it might mean lower interest rates and lower monthly payments. There are two types of debt consolidation loans: secured and unsecured loans.

A secured debt consolidation loan can be used if you own real estate. These types of loans include a first or second mortgage, home equity loan or refinancing of your current mortgage. Each of these has its advantages and disadvantages. The advantage is that interest rates on secured loans are typically lower than with unsecured debt consolidation loans and you may be able to borrow more money with smaller monthly payments and longer repayment terms. However, one of the major disadvantages is that you risk losing your home if you default on the loan.

An unsecured debt consolidation loan is for those who don't have real property. Since you are not putting up any collateral, you don't risk your assets. However, these do not have the same advantages as a secured debt consolidation loan. You'll have shorter payment terms and typically higher monthly payments and interest rates than secured loans.

Remember that debt consolidation is a debt management tool, but if you are already in serious debt trouble, then you need to seek the advice of a professional debt counselor. Also, before applying for a debt consolidation loan of any type, be sure to sit down and create a budget. A budget will go a long way in helping you make your decision about debt consolidation.