Debt Consolidation – Secured vs Unsecured, Which is Best for You?

Debt can be considered to be of two types, Unsecured Debt and Secured Debt. Unsecured Debt can be categorized as those loans which do not have any collateral and any failure to meet the payments in time invites legal action. Secured Debt on the other hand represent the Debt which has a collateral attached to it.

Debt consolidation is the term used for the concept of borrowing money from one source to cater to multiple obligations of debts which were taken earlier. The idea being that all previous debts are being replaced with one single debt. Shifting from several debts to one consolidated debt has many advantages linked to it. The first and foremost advantage is that the person does not have to make several payments at different dates in a particular month. Instead one single amount can be paid against debt. Other advantage includes moving away from maintaining a list of dates on which the debt installment is due, and possibility of getting the terms of repayment negotiated which may be in the form of low interest or more number of installments.
There are many companies which offer Debt management and Debt consolidation services. However, one needs to check the terms on which a debt consolidation program is being offered by any company.

A debt consolidation loan will only be effective in case the borrower ends up paying same interest or a lesser interest. In case the interest rate is high, the whole purpose of consolidation becomes futile. It is always suggestible to seek professional advice before making a shift over to a consolidated debt.

The concept of debt consolidation can be extended to student debt, medical debt etc. A Federal education loan having a variable rate of interest can be converted to consolidated debt in the form of student debt consolidation with a fixed rate of interest.

Other alternate ways in which one can find a solution to the amount of Debt the person is holding can be in the form of IVA (Individual Voluntary Arrangement).

When the Debt amount is high an Individual Voluntary Arrangement can be one of the ways to get rid of a huge pile of debt and avoiding bankruptcy. In comparison to a Debt management program the IVA or the Individual Voluntary Arrangement can be more effective as it will give the leverage of both the interest on the debt being frozen and prevention of any legal action.

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