First of all let’s take a look at what exactly it means when you consolidate your debt.
To consolidate your debt means that you take all your different debts and you merge them together into one large loan. Simply put – you use one large loan to pay off your smaller different debts.
Debt consolidation is under many circumstances the best answer for people to get rid of their debt.
In fact it makes perfect sense, to consolidate all that credit card debt and high interest rate loans into a single loan, which will give you a lower interest rate and more manageable payments every month. If it used wisely and correctly, debt consolidation could be very helpful.
However if it is misused and mistakes are made consolidation can be dangerous and even lead up to more debt.
Secured & Unsecured Debt Consolidation
There are two types of debt consolidation loans: secured & unsecured.
Secured loans are when the loan is secured with an asset – such as your house or car. There is of course a big risk – if you fail to make your payments, that asset can be claimed as payment.
An unsecured loan is the safer choice for many. It is not secured with an asset and an example of an unsecured loan is a personal loan.
Let’s take a quick look at some tips that might be useful when you are considering debt consolidation.