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Debt has a tendency to drag people’s lives down. When outstanding obligations are owed, the ability to maintain any level of fiscal independence becomes incredibly difficult. High rates of interest do borrowers no favors. As monthly payments are made, significant amounts of the funds go to pay interest. Paying more than the monthly minimum aggravates this outcome. Many cannot, however, pay more than the monthly minimum because they simple owe too much to too many lenders. A person with a number of “maxed out” credit cards is going to find paying off debt to be extremely problematic.

An often-mentioned solution is to procure a debt consolidation arrangement. A bit of confusion arises regarding how debt consolidation works. A better understanding of the process is sure to lead to a preferred and more agreeable outcome.

The Concept of Debt Consolidation

Debt consolidation refers to the combining of various debts under one single loan. Credit cards and other unsecured debts are the ones commonly paid off with a new loan. Consolidation loans deliver a number of helpful benefits to those who are otherwise struggling with their finances. Lower interest rates are the most appealing. The less interest on a loan, the quicker the loan is to pay off.

Lower monthly payments are absolutely appreciated by those who are stuck paying hundreds upon hundreds of dollars per month in the form of minimum payments. As previously mentioned, paying extra is necessary to quickly eliminate a loan. Paying an extra $100 on a debt consolidation loan is positively more beneficial than paying an extra $300 across several loans and never addressing the principle.

The basic concept of a debt consolidation loan is easy to grasp. What may be surprising to some is there are different forms this type of loan can take.

Two Basic Forms of Debt Consolidation Loans

Debt consolidation loans come in two varieties: unsecured and secured. Unsecured loans are what most seek out first.

Unsecured loans are, ironically, the category of loans that get people into serious debt problems in the first place. An unsecured loan is a personal loan issued based on someone’s previous credit history, income, and financial situation. No collateral is required to access one of these loans. Unfortunately, a credit rating may be ruined by mounting debt. Those unable to acquire a personal loan should look towards secured loan options.

Secured loans are ones backed by some form of collateral. Defaults on the loan mean liens against or seizures of the collateral are possible outcomes. A positive side to these loans is, in addition to their being more easily approved, the interest rates are lower than unsecured ones. Higher amounts can be taken out when a loan is backed by collateral. Of course, the utmost serious is required to pay back such a loan due to consequences associated with default. Interestingly, lenders have a positive outlook on those who take out consolidation loans.

Positive Impressions of the Borrowers

People who opt to take out a consolidation loan are becoming very serious about getting their finances in order. Granted, there are those who make the drastic mistake of running up new debt on top of the consolidation loan amount. Not every borrower learns his or her lesson. Based on averages, it seems most people do. A gallant effort is made to pay off debt. Usually, three to five years is all it takes to do so.

The Search for a Lender

Finding a lender capable of issuing a debt consolidation loan should not be too difficult. All banks and credit unions are in the business of issuing loans. Debt consolidation loans are among them. Simply inquire with the loan department of a financial institution to start the application process.

Moving as quickly as possible with the process is absolutely recommended. The quicker things move, the faster all those high-interest loans end up eliminated.