You are probably familiar with what debt consolidation is. You probably know that a debt consolidation loan is either secured (usually a second mortgage) or unsecured (a higher interest rate). These loans are designed to help you pay off multiple debts with a lower payment and a single interest rate. You have also probably heard about debt consolidation programs that work with your creditors to lower interest rates and balances and pay the bills for you without a loan. It’s confusing to know which route to take with debt consolidation. Let’s look at which of these options is the best debt consolidation method.
Let’s start with secured consolidation loans. Secured consolidation loans are often referred to as a second mortgage because the lender uses the equity in your home to secure the loan. This is the riskiest debt consolidation option, but it may be your best debt consolidation chance. With the havoc the financial markets have seen as of late, this may be the only debt consolidation loan available.
The second debt consolidation loan option is the unsecured loan. This option requires that you bring all of your bills and financial statements to the debt consolidation company. They will often use the third debt consolidation method of negotiating with your creditors before moving to the unsecured loan option. This is often a last resort. They will first focus on helping you get your lifestyle in check and see where they can reduce interest and make settlements on past-due bills.
If a debt consolidation company cannot get a debt settled, they may set you up with an unsecured or secured loan and pay off the debts. You now pay the debt consolidation agency for the previous debts in a new loan. You will receive certain terms such as a minimum payment each month and continued financial counseling.
So what is the best debt consolidation method? It’s hard to tell without knowing your specific situation. You should really seek the advice of a reputable financial counselor. Be sure to check any financial counselors out with the Better Business Bureau.