A Look at the Basics of Unsecured Debt Consolidation

October 28, 2011 by  Filed under: Debt 

If you have trouble paying your bills, you won’t be able to avoid being harassed by your creditors. They will probably be asking personal questions, making demands, or perhaps even making threats. They might even try to take legal action. This is a predicament that will probably leave you wondering how you can fix things. In your position, many people decide to investigate the value of debt consolidation.

The first step in debt consolidation is allowing a professional to make an assessment of your financial position and decide what action to take. Usually the next step is for the debt consolidation company representative to contact your creditors and ask them to reduce the interest rate and the balance of your debt. An expert negotiator could even persuade them to eliminate the interest completely.

As soon as the negotiator and your debtors have come to an agreement on the amount owing, the company will then offer you a debt consolidation loan. This allows you to make one payment monthly to cover your debts rather than multiple payments to many creditors. This reduction of all your debts to one single loan will give you much needed breathing space.

There are two kinds of loans to choose from – unsecured and secured. A secured loan requires that you provide collateral. If you own your own home or car, these could be collateral, or failing that, your bank account. So, if you are unable to repay your debts, the company gets to keep the collateral.

An unsecured loan is a far better choice for you. This way you don’t need to put any of your possessions at risk. Also, you get a feeling of security knowing that whatever happens, you still get to keep your car and house. This kind of loan is ideal for people like students who do not have anything they could pose as collateral.

Your credit rating can be improved, reducing your monthly repayments, if you take an unsecured loan. These advantages are offset by the fact that your interest rate will be higher.

The big advantage to an unsecured loan is that your creditors are no longer bothering you. And you can breathe easily knowing that you will not lose your home if you are not able to pay your debt. Unsecured loans are taken out for a longer term, so you will be paying off your debts for longer than if you put your house at risk. Also the repayments will be higher than for secured loans. But at least you don’t have creditors bothering you and, again, you get to keep your house.

Unsecured debt consolidation loan eliminates the stress of being in debt and being harassed by creditors. If this kind of loan appeals to you, the next step is to compare the rates of a few debt consolidation companies and find one that can help you.

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