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Unsecured Debt Consolidation

There are wide array of help available for unsecured debt consolidation. In an ideal scenario you can choose to take out a debt consolidation loan to lower your rates and payments. You may also choose to take the help of a debt consolidation programs, letting a third party deal with your creditors. And lastly, you can turn to a credit counselor to help you find the best plan for your situation.

Debt Consolidation Loans

A debt consolidation loan can be defined as any type of loan you take out for the purpose of paying off other creditors. Generally you want to find a loan with lower interest than what you are currently paying on your bills. Though, even if you dont lower your rates, you can lower your monthly payments by choosing a long-term loan. The disadvantage of course is paying more in interest charges.

You can opt from a secured loan, usually backed by your home, or unsecured debt consolidation loan. Secured loans, including a home equity loan, second mortgage, and line of credit, will more often than not have lower rates and the tax advantage of writing off your interest payments. Though, if you dont have a home, you can still find relatively low rates with a personal loan.

Debt Consolidation Programs

You can also work with a debt consolidation program to minimize your rates and consolidate your bills. This third party agency will make sincere effort to negotiate lower rates with your creditors for a small fee. Furthermore you also only make one monthly payment, letting the agency pay your bills from that sum. Few non-profit agencies also specialize in helping those with six or more months of late payments.

Before you register with these types of programs, be sure you have researched several agencies as well as compare pay back dates, fees, and estimated monthly payments.

Credit Counseling

In case if you are confused about your options or just dont have a plan for getting out of debt, consider visiting a credit counselor. As a non-biased person, they can depict your financial options. They can also analyze with youre the pros and cons of each options, helping you find the best program for your unique situation.

Besides helping you to consolidation your bills, they can also play a pivotal part in helping you develop a monthly budget and long-term financial goals.

Unsecured debt consolidation loans are the types of loans that individuals take out from a bank without placing any collateral for the loan. Such types of loans are availed to pay off credit card debt or medical bills. Usually, unsecured debt consolidation is undertaken to reduce and eliminate debt by paying off a high-interest unsecured loan, like credit card debt, with a low-interest secured loan like a home equity line of credit. Debt consolidation therefore helps in lowering interest rates, which works in the long run to eliminate debt faster.

Remember that unsecured debt consolidation loans are not secured by any collateral like a home or a car. These are generally in the form of personal loans. Personal loans are one method of paying off credit card debt if one does not own a home or a car. Large chunk of banks offer such plans for their customers who have a satisfactory banking history with them. Though, interest rates on unsecured personal loans would be higher than a secured home-equity line of credit.

Generally, the amounts disbursed, as unsecured debt consolidation loans are lower than what would have been if the debt consolidation loan were secured. Wells Fargo Financial, for instance, offers its customers home equity lines of credit for debt consolidation starting at $10,000, whereas unsecured personal loans for debt consolidation at capped at $10,000. Thats why unsecured debt consolidation loans are essentially for those individuals who carry lower credit card debt, but still want to consolidate it and eliminate it completely.

While an unsecured debt consolidation loan is a perfect way to pay off high-interest credit card debt, very often individuals end up a few years later with a similar credit card debt and the added burden of paying off the personal loan. The major factor to debt reduction and elimination is to keep a check on ones spending. There are secured and unsecured debt consolidation loans available in the market to help one out of debt, but the process must start at the individuals level.

Unsecured debt consolidation minimizes your rates, helping you to pay off your debt sooner with one easy payment. You can also get rid off your monthly payments. Though, consolidating your short-term loans can temporarily lower your credit score. Moreover you may also be tempted to use your paid off accounts, creating a bigger financial problem.

Lower Interest Rates And Payments

Consolidation loans as well as debt management plans (DMP) can both lower your rates. Home equity or personal loans gives lower rates than credit cards and can be used to pay off bills. A DMP company more often than not negotiates lower rates with your creditors.

With minimized rates, your minimum monthly payment will also be lower. While it is tempting to pay the minimum, it is quite important that you keep paying what you are now to rapidly lower your debt. If you do required to lower your payments, consider extending your loan terms.

Easier To Manage

Consolidating your bills makes payments simpler to handle. Instead of number of accounts to manage, you only have one. DMP only need one monthly payment to the managing company, they then handle paying your accounts.

Temporarily Lowers Credit Rating

A loan or DMP will play a crucial role in lowering your credit score temporarily. By starting a loan account, your rating is lowered for the credit activity and amount borrowed. You can offset this in portion by closing accounts that you pay off.

DMP will minimize your rating if your creditors send notice to the credit reporting agencies. Remember that not all creditors report arrangements with DMP companies. In case if they do, in the short term you may be unable to open new accounts. After a year of regular payments and minimized debts, you will qualify with most lenders.

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