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5 Things you Need to Know About Debt Consolidation

Friday, 04 Mar 2011 03:55 PM

Debt consolidation means taking out a single loan to pay off your overdue loans. This helps you obtain a loan at a lower interest rate or a fixed interest rate. As a result, you may have to pay back just a single loan. You need to know the following about debt consolidation:
1. Collateralization helps raise a loan at a lower interest rate. Through collateralization, the asset owner agrees to allow the forced sale of the asset, if necessary, to pay back the loan. The lender’s risk is thus reduced, leading to lower interest rates for the borrower.
Credit debt consolidation is often advised when you are paying credit card debt. The total interest and the total cash flow towards the debt (principal) come down. As a result, you pay off the debt sooner and the interest outflow is reduced.
2. Unsecured debt consolidation is money that you borrow without furnishing any security in the form of property. Any individual can raise loans or take out credit using the unsecured debt process. Getting into an unsecured debt consolidation process allows you to pay off your debts faster.
3. A debt consolidation loan basically takes care of all of your bills, such as those from credit card companies, household bills, etc. The bills are consolidated into one monthly payment. The monthly payment is lower than the sum of payments on individual debts. As long as you are able to make this payment at monthly intervals, your credit will remain unaffected and you will be working towards the goal of settling all of your bills.
4. You should consolidate debt to avoid bankruptcy. Debt consolidation loans are taken to pay bills which you have incurred earlier. These can be paid off in monthly installments at a much lower rate of interest.

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