Website design By BotEap.comThe financial crisis or economic recession of 2008 saw not only the housing market crash, but high interest rates also had an impact on the credit worthiness of several other people outside of the home loan / mortgage finance segment. Personal debts also increased several times and people sought higher payments mainly towards payments towards outstanding credit card amounts. Additionally, rising costs for utilities, retail purchases, and medical bills forced many to borrow to pay their bills. The resulting situation was a high degree of unsecured debt that left even many high-income people in dire straits as losses accumulated and assets fell short of their market value.

Website design By BotEap.comThere are many debt relief options to help you deal with unsecured debt; One of them is making use of a debt consolidation loan. But understanding what a debt consolidation loan provides in terms of debt relief is very important in looking at all your options.

Website design By BotEap.comA debt consolidation loan is only one part of the debt relief process; other options include debt settlement and, in the worst case, bankruptcy.

Website design By BotEap.comLet’s take a look at what a debt consolidation loan entails.

Website design By BotEap.comGenerally, it means combining or bundling all the high-interest credit cards owed into one payment on a much lower-interest loan. It can also mean the ‘solidification’ of all credit cards owed into a more structured and manageable payment schedule to a credit counseling agency, which in turn distributes payments to individual creditors.

Website design By BotEap.comDebt settlement is another debt relief option in which there is hope of negotiating outstanding payments with creditors to arrive at a payment substantially less than the actual debt. These debt relief methods provide alternative means of declaring a person ‘bankrupt’, which has a damaging and devastating impact on personal credit in the long run.

Website design By BotEap.comHence, debt consolidation represents a wide variety of debt relief options; However, unlike a debt consolidation loan, it involves the “solidification of all debts”, including unsecured debt, into an affordable and manageable monthly payment plan, the details of which are reported by a credit counseling agency. This type of debt consolidation is sometimes called a DMP or debt management plan.

Website design By BotEap.comA debt management plan is considered a smart measure to get out of bad debts; However, applying for a debt consolidation loan requires that the person making use of the loan present some type of guarantee as risk insurance. This effectively means that in the event of a default in payment, the collateral can simply spiral out of control.

Website design By BotEap.comA personal loan is exactly what it means. It is a personal loan that is taken with a long-term, low-interest program to pay off old or bad debts, usually unpaid credit cards. In short, it means paying off “old debts with a new loan.” For consumers who cannot be counted on to exercise discipline by curbing spending on credit cards, this simply leads to more outstanding and overcharged payments, sometimes defaulting again and eventually leading to a worse borrowing scenario.

Website design By BotEap.comThe comparison between a personal loan and a debt consolidation loan can provide variable results; what works for one may not work for the other. However, when a credit counseling agency is involved, debt repayments are consolidated into an affordable repayment plan and a planned schedule is maintained.