Being in debt can be overwhelming. Many times, people struggle in the debt quicksand with little or no hope of coming out of it. The average American has credit card debts, and payday loans to worry about.
Debt consolidation has proven to be effective in taking care of most of these debts. Finally being able to get off the debt ditch after being there for a long time is a rare experience that many people struggle to have. However, one of the easiest ways of embracing one’s debt is by considering the possibility of consolidating debts
Types of Debt Consolidation
Different consolidation options are available to people who are considering using debt consolidation as a strategy for getting out of debt. They include:
#1. Secured Loans
To take out this type of loan and use it for consolidation, the borrower must have an asset whose value is comparable to the loan amount. This asset acts as collateral which secures the loan and gives the lender legal rights over the property if the borrower defaults in making payments. The asset used for collateral maybe a car, or a house
#2. Unsecured Loans
These types of loans are not in any way backed by an asset. This makes it pretty difficult to obtain because they are usually given on the borrowers’ creditworthiness. Many lenders will have to consider the borrower’s credit score and their records showing proactiveness in paying back loans before they are approved.
Additionally, unsecured loans attract higher interest rates and lower qualifying amounts than secured loans. However, the interest rate for both types of debt consolidation loans is lower than credit card or payday loans. Also, this type of loan comes with a fixed interest rate making it to be a more viable loan option than other types of loans.
Debt Consolidation Techniques
There are different ways to consolidate your debt and pay it off faster. They include:
- Credit cards: you can transfer your credit card balances to a single card. This is a viable option only in a situation where the new card offers a lower interest rate. Otherwise, it will defeat the aim of consolidation.
- Debt consolidation loan: with this technique, debtors can take out a large loan sum and use it to pay off their debts. Many institutions like the traditional banks and cooperatives offer such loans to people who are experiencing difficulties paying off their loans.
Conclusion
Agreeably, being in debt is not a wonderful experience. However, by applying the right debt consolidation technique based on the peculiarity of your situation, you can be debt-free in no time.
