Article Surfing Archive

Debt consolidation involves taking a loan to pay off two or moreexisting debts. Loans not backed by a collateral, such aspersonal loans from family members and friends, are unsecuredloans.

Debt consolidation backed by a collateral, such as securedpersonal loans, a second mortgage on the home, an advance on anexisting mortgage, or a re-mortgage are examples of secured debtconsolidation.

Secured debt consolidation is another term used to describe ahome equity loan or a second mortgage on a fixed asset. Homeequity refers to the worth of a home; when a homeowner takes outa "home equity loan," he is taking a loan out against his housein order to get a higher amount of credit and more favorableinterest rates.

While secured debt consolidation is easily available, it must beavailed only after dueconsideration of the benefits as compared to the drawbacks.

The biggest risk involved with secured debt consolidation is thatit 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 loansoften run for a length of twenty to thirty years. Although theinterest rate is not very high, the long tenure of the loan meansthat at total repayment being made towards the secured debt ismore.

However, the option of secured debt consolidation is not withoutits benefits. The immediate cash outflow of the borrower fallsdrastically, thereby reducing the stress and tension that themultiple payments and varying rates of interest caused. Thesmaller monthly payment provides the borrower with breathingspace to sort out his finances.

If the amount involved in the debts being consolidated is high,the client is offered secured debt consolidation only. Unsecuredconsolidation loans bear a high rate of interest and provide verylittle relief to the borrower.

It is important to realize that secured debt consolidation is thebest solution to debt crisis if the consolidation is accompaniedby an improvement in financial planning and by disciplinedborrowing.

Talbert Williams 2001-2006 All Rights Reserved