Nowadays, most people are usually not very familiar with debt consolidation loan programs.

In fact, only a few articles and journals focus on what this credit account is all about. Therefore currently, we provide useful information about this kind of loan program by answering probably the most commonly asked questions about debt consolidation.

FAQ’s about Debt Consolidation Loans

What exactly is debt consolidation?

Debt consolidation is a program that aims to help consumers pay off their existing debts. It involves merging or consolidating debts into an account that consumers can repay through single monthly installments.

A debt consolidation program can be offered through any of the following methods:

A substantial loan that consumers can use to completely retire their existing financial obligations or

A zero interest credit card where in all their credit card debts will be consolidated.

What are the benefits of consolidating debts?

Consolidating debts can surely work to the advantage of consumers. Instead of managing several debts with varying interest rates and fees, they will only need to worry about making a single payment each month, so that they can gradually settle their existing financial obligations.

Consolidation is also an effective way to stop the continuous build-up of debt due to additional monthly charges such as interest fees and membership fees; and because this type of financing involves a longer repayment period, you can find lenders that offer debt consolidation loans with relatively lower interest rates.

Can consumers with low credit ratings apply for debt consolidation loans?

An unreliable payment history, especially one that contains payment delinquency, bankruptcy, tax liens and other negative records can reduce your chances of being granted a loan for debt consolidation.

Still, it is good to note that a growing number of firms these days cater to the specific needs of consumers with bad credit scores. To compensate for the huge risk involved in allowing consumers with poor credit rating to take out loans, they normally charge higher interest rates and impose more stringent payment terms.

What is a secured debt consolidation loan?

A secured debt consolidation loan is a credit program that requires borrowers to pledge collateral or security for the loan they wish to apply for.  In most cases, consumers secure their debt consolidation loans by offering their homes as a  guarantee that they will repay on time.

However, it is important to note that this type of credit program has a huge drawback. In case a borrower fails to keep up with monthly payments, a lender can repossess the home to settle all unpaid charges. Thus, consumers are constantly reminded to consider the risks and responsibilities before they apply for a secured debt consolidation loan.