About Unsecured Debt Consolidation Loans

Unsecured debt consolidation loans are a means for consumers to combine their unsecured debt into one monthly payment. Unsecured debt refers to credit cards, student loans and anything else not secured with collateral. Companies offering unsecured debt consolidation loans also do not require collateral for the loan. Carefully research any company offering these loans before you sign on the dotted line.

Function

Making several payments monthly to high interest credit cards among others can be alleviated by taking out one loan and paying off all of your other unsecured debt, leaving you with one monthly payment. Often, these payments are lower than the combination of your current bills, making this an offer worth considering.

Features

Unsecured debt consolidation loans do not ask for any collateral for your loan. This means that your house, car and mother-in-law are safe from repossession. The repayment period is fixed so you know when you will be debt-free. The added bonus of having only one payment each month makes these loans attractive to many consumers.

Effects

Debt consolidation companies advertise that they can pay off your debts quicker, with less hassle and with lower monthly payments. On the surface this looks positive but you must consider how they operate. One of the methods they employ is to contact your creditor and negotiate lower interest payments and even lower payoff amounts, something you could also accomplish with a phone call.

Considerations

Accepting a loan to pay off unsecured debt may be a smart financial move, but you should carefully consider all of the implications. Debt consolidation loans may offer lower monthly payments, but they will likely cost you more in the long run. Aside from the fees for the consolidation loans, you will often pay higher interest rates over the course of the loan. Keeping your credit cards after they have been paid off leaves you vulnerable to getting in over your head again. Save one card for emergencies and cut up the rest so you won't be tempted.

Benefits

If you can save a few hundred dollars each month and you don't mind paying more for your debt overall, then a debt consolidation loan may work well for you. One monthly payment saves time and you only have one creditor to deal with. If you are experiencing harassing phone calls from your unsecured debt holders, then a debt consolidation loan will stop the phone calls.