Debt consolidation involves taking a loan to pay off two or more
existing debts. Loans not backed by a collateral, such as
personal loans from family members and friends, are unsecured
loans.
Debt consolidation backed by a collateral, such as secured
personal loans, a second mortgage on the home, an advance on an
existing mortgage, or a re-mortgage are examples of secured debt
consolidation.
Secured debt consolidation is another term used to describe a
home equity loan or a second mortgage on a fixed asset. Home
equity refers to the worth of a home; when a homeowner takes out
a "home equity loan," he is taking a loan out against his house
in order to get a higher amount of credit and more favorable
interest rates.
While secured debt consolidation is easily available, it must be
availed only after due
consideration of the benefits as compared to the drawbacks.
The biggest risk involved with secured debt consolidation is that
it puts the house at risk. If the homeowner defaults on payments,
he must then forfeit his house.
Secured debt consolidation is long term in nature. These loans
often run for a length of twenty to thirty years. Although the
interest rate is not very high, the long tenure of the loan means
that at total repayment being made towards the secured debt is
more.
However, the option of secured debt consolidation is not without
its benefits. The immediate cash outflow of the borrower falls
drastically, thereby reducing the stress and tension that the
multiple payments and varying rates of interest caused. The
smaller monthly payment provides the borrower with breathing
space to sort out his finances.
If the amount involved in the debts being consolidated is high,
the client is offered secured debt consolidation only. Unsecured
consolidation loans bear a high rate of interest and provide very
little relief to the borrower.
It is important to realize that secured debt consolidation is the
best solution to debt crisis if the consolidation is accompanied
by an improvement in financial planning and by disciplined
borrowing.
Talbert Williams 2001-2006 All Rights Reserved
About The Author
Talbert Williams offers free help and referals to help consolidate and eliminate your debt at:
www.debt-free-america.com.
debteads@debt-free-america.com
