How To Use An Unsecured Loan To Consolidate Debt

Debt consolidation loans are resorted to by debtors who are burdened with a vary

large number of loans at different and often much higher rates of interest as compared to the interest rates applied to debt consolidation loans. This reduces the complication of having to maintain different loan accounts and payment schedules, not to mention the comparatively lower and often fixed rate of interest available on debt consolidation loans.

Secured and Unsecured Debt Consolidation Loans

Companies and banks providing debt consolidation loans usually give two options to the debtor. One is that of a low interest debt consolidation loan which is secured by mortgaging an asset. A residential property or house is the most preferred by most of them as security against the loan. Unsecured debt consolidation loans do not require the collateralizing of any kind of asset and are usually a higher risk to the lender, providing these loans. This is the reason that the interest rate on these loans is also much higher as compared to secured loans.

But in spite of the higher rates of interests applied by most companies on the unsecured debt consolidation loans, they are at times very useful and sometimes the only resort for debtors crushed under the burden of too many high interest loans. This is due to the fact that even the unsecured debt consolidation loans are available at lower rates as compared to the variety of high interest loans being borne by the debtor. But some debtors, usually those belonging to the younger generation, do not own any assets which can be collateralized to obtain secure debt consolidation loans. This is where the availability of unsecured debt consolidation loans comes in handy.

Benefits of Debt Consolidation Loans

The importance of the availability of debt consolidation loans decreases the financial burden on the people who due to lack of proper income to debt ratio calculations and improper financial management, end up with more loan payments than their average monthly income. This is especially true of people who have landed themselves in this situation due to the impulsive and often miscalculated and excessive usage of credit cards to purchase things they cannot afford to buy right away.

The other category of people who can benefit most with the unsecured debt consolidation loans, are those who have just completed higher education degrees, with the help of education loans. These people usually manage to land good jobs which are considered as respectable professions. This leads to the easy availability of various loans like consumer product loans, credit cards etc. as being in a respectable profession increases the credit ratings of these individuals. But since they are newly employed they usually end up paying much higher rates of interests on these loans as compared to the debtors who have an established professional history. As they have just begun their career they are usually unable to purchase property or other form of assets which can be offered as collateral against secured debt consolidation loans. The rates of interests offered by companies providing unsecured loans are lower than their existing collective loans.

by: frenn

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