There are many differences between the various types of debt relief. .. If you are considering debt relief, it may do you well to know some of these differences. Obviously we would all like to correct our loan situations when it gets bad.. The problem would arise when we realize that there are just too many debts surrounding us and they are finally taking a toll on us. One of the debt relief options you may look into is a debt consolidation loan, which is a form of debt consolidation. However, before we look into the details of a debt consolidation loan, let’s review our understanding of some basic terms first.

Debt relief, in the simplest layman terms, means the forgiveness of debt and usually involves debt restructuring. You may not expect the whole amount of debt to be scraped away, although a reduction in the total debt amount is possible. Many people who choose debt relief are usually on the brink of bankruptcy.

Debt consolidation is a solution to control and organize debts, where one merges all his or her debts together into one lump sum and creates a new payoff plan for it. This will usually result in lower interest rates but it does not reduce your debt amount. Debt consolidation typically necessitates a debt consolidation loan but it may also come in other forms like credit card consolidation, credit counseling, and debt settlement. To know which option is best for you, you may seek assistance from credit counseling firms or debt relief experts.

Debt consolidation loan is essentially the integration of loans with a twist – a new loan with much lower interest rate is acquired to pay off all the consolidated loans. This new loan is usually used to help you with the repayment. The consolidation of loans would have likely eliminated the multiple interest rates from multiple loans, in order that the new low interest loan may help your repayment with greater ease. It is likely to result in a lesser amount of debt. The debt consolidation loan also comes in two forms – secured or unsecured loan. The secured loan usually requires an asset as collateral while an unsecured loan does not. Some people prefer secured loan to unsecured loan as it provides a lower interest rate.

On the contrary, an ordinary debt consolidation does not involve another loan; it is merely a new payoff program to help clear the consolidated loans aggressively. The idea here is to help to eliminate the various interest rates through the consolidation, but it does not involve taking up a new loan or reducing your debt. You, the debtor, will in all probablity be required to complete the repayment process through your own aggressive will. Therefore, if you are not likely to be able to pay off the debt from your own resources, the debt consolidation loan may be a better option.

Another common type of debt consolidation program is the credit card debt consolidation. Without even knowing it, most of us have managed to collect more than two credit cards in our wallets and using them without much concern. Well, one big concern that you may want to take notice is the multiple interest rates from the cards, which translates to a bigger pile of debt. If this sounds like your situation, you may like to consolidate them into one sum with one relatively lower interest rate.

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Category: Finances
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