What you need to know about debt consolidation loans

Debt settlement vs Debt consolidation

Debt consolidation loans are also called secured loans – a type of loan wherein the borrower makes use of his personal belonging to use as collateral for a loan. You will then use the loan proceeds to pay off your debts and make just one monthly payment.  Learn how to consolidate credit card debt.

There are many types of loans you can get to consolidate your debts but two are more popular. These two type of loans are called secured and unsecured loans. Secured loans are secured by some sort of collateral - be it stock, bonds, arts, ect. This means that you are securing the loaning institution that if you fail to pay your terms, your collateral could be used as your source of payment. There are several more ways to consolidate credit card debt. 

Unsecured loans are the riskier type of loan and it comes with the higher interest rate. If you fail to pay your debt, the loaning institution has no way of running after your possessions and cannot use your belongings as substitute for your mis-payment. It's good to deal with the best debt consolidation companies when you seek out an unsecured loan.

Many people take out second mortgages which is used as a debt consolidation loan. The reason is that for most people, the equity that they have established in their home is their largest single asset. Equity is the difference between what is owed on the home and the balance of the mortgage. Fair market value is also considered. If your property value has increased, the difference between what you owe and what it's worth is your equity.

Being granted a debt consolidation loan is very much like the process that was required to get a first mortgage. Your equity in your home is the collateral that you are using to get a second mortgage. The payment that you will be required to make each month is also a payment on your home just like the first mortgage.  The interest rates for a second mortgage will be much less than the interest rates that you are paying on credit cards, but the length of the loan will likely be greater.