If you are interested in using the debt consolidation service, you should first know about the types of debt consolidation loan that many financial companies usually offer.
Each of the types has its own advantages and disadvantages.
You can get them along with all terms and conditions provided by the institutions offering the service.
Consolidation with Collateral
As the name implies, this system requires you to give collateral when doing the debt consolidation.
In most cases, the collateral is usually in a form of asset that can be pledged, such as property, and residential property is more favorable.
In other cases, you can also give your car as the collateral.
To participate in a consolidation debt with collateral, the currently running debt can be either in arrears or run smoothly.
That is why even though you have not to experience arrears, you can take this step as a preventative step in order to pay off debts with temporary relief while still having funds.
For those who have been in arrears, the debt consolidation loan companies will also help conduct the negotiation process before the debt is finally consolidated.
By doing this way, you can pay off the debt more lightly.
Consolidation without Collateral
Consolidation without collateral is an alternative that many debt consolidation loan companies offer to those who do not have valuable assets.
In this type of program, you can consolidate several credit cards that you have with a certain minimum amount of debt.
This system usually requires a smoothly paid debt.
In other words, it should not be in arrears.
You do not need to use any collateral.
What you have to do is just registering yourself in them, then some types of debt will be replaced by one new debt.
What You Need to Remember
It is, indeed, true that by consolidating all debts into a single one you will be able to more easily manage transactions through monthly payment.
However, you need to remember that by consolidating the debt you have, the monthly payments will automatically become larger than before.
Therefore, if you fail to manage the current and future finances well, you can be trapped into a large debt.
You should also keep in mind that debt consolidation is not the only solution to your debt, and it cannot reduce the amount of your debt.
It works by simply merge all your debts into one lump sum to reduce the interest.
If your current monthly payment under a debt consolidation seems to be smaller than before, it can happen because the loan period is longer.
And it will lead to a larger interest than the previous one.