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There are times in life when the accumulation of debt can become overwhelming. Many people find that obtaining credit is often much easier than paying it back. Struggling with an overload of debt not only crushes the spirit, it can be devastating for the future. While managing a ton of debt may seem insurmountable, there are solutions.

Debt consolidation loans offer a ray of hope for those who find debt management to be an increasing difficulty. Consolidation loans work on a simple premise; combine a debtor’s high interest personal debt into one low rate loan.

Notable benefits of a debt consolidation loan include:

• One monthly payment rather than several creates a huge reduction in fees and interest charges commonly associated with falling behind on numerous bills.
• Consolidating debt allows for more financial freedom. Having one lower payment a month may help debtors afford to put more money towards paying off the mortgage or start a savings plan.
• Debt consolidation may improve lagging credit scores by lowering the number of accounts a debtor holds and by showing the rolled over debt as having been paid as required.

For many individuals, a debt consolidation loan is an efficient weapon in the battle of the bills. For others, however; consolidation of debt may prove detrimental in more ways than one.

• For poor financial planners, debt consolidation may give the misconception of freeing up money and credit for the purpose of obtaining more debt. An example of this would be as follows:
  • Sarah has four credit cards, a car loan, and many regular bills such as a house payment, electricity, trash, etc.
  • Sarah finds that with all the money she pays out, there is little left over to enjoy life.
  • To remedy this, Sarah consolidates all her debt into one low payment loan.
  • This frees up a substantial amount of money for Sarah and looks great on her credit score.
  • Now with a seemingly fresh start and a renewed vigor, Sarah rushes head long to the mall to buy that diamond tennis bracelet she’s been dying to have.
  • The problem; the bracelet goes on her newly re-filled credit card and gives her another monthly payment.

Those with poor spending habits rarely learn to manage debt more accurately through debt consolidation.

• Debt consolidation may reduce stress by lowering payments, but has the added inconvenience of extending the debt to longer terms. In theory, this would be ideally rectified with the debtor paying any excess income towards the goal, thus eliminating the debt quickly. Unfortunately, most people do not do this and instead acquire more debt thinking they have enough money to afford them now.

When discussing debt consolidation loans, it is important to note that there are two types. Secured and unsecured.

Secured loans are obtained through the process of using collateral. This means that items such as owned vehicles, homes, or other assets will be attached to the loan and upon failure to repay, the items become the property of the lender. If the debt consolidation loan is paid as agreed, all collateral is then released by the lender.

Unsecured debt consolidation loans are more difficult to acquire. These are often given to consumers who have a high credit analysis and good employment. An unsecured loan is more desirable in the event that financial hardships may increase as it reduces the amount of damage that may be suffered by the borrower if obligations are not met.

When seeking a debt consolidation loan, always do your research. There are many reputable companies who offer these services, but many others impose unfair interest rates and use improper lending practices. Before deciding on debt consolidation, be sure to consider all other methods of debt reduction.

Whether it’s unexpected car repairs or a financial shortage, life can come at you fast. During times of difficulty individuals may desire an unsecured personal loan. These loans are designed to help borrowers overcome many of life’s fiscal adversities by giving money to those who qualify.

What are they and what do they do?

Unsecured personal loans give consumers the freedom to borrow money without the use of collateral. More traditional loans often come with the stipulation of assigning ownership of certain assets to the lender until loan terms are completely fulfilled. With unsecured loans, lenders retain all possession of valuable property.

Although unsecured personal loans may be used for many situations, they are most often suggested to individuals desiring debt consolidation. The intent of the loan is for the borrower to pay off all other debts with the monies granted to them by one lender. These types of loans are favorable to many lenders as they profit through interest and lengthened term times.

How to Get an Unsecured Personal Loan

Acquiring an unsecured personal loan is sometimes difficult. To qualify, most applicants must have an excellent credit history and a steady income to repay the debt. In most cases, a credit score of 700 or above constitutes a better chance of qualifying for an unsecured loan, but does not guarantee acceptance. It is possible to get one of these loans with a lower score, but interest rates are often much higher.

The process of for an unsecured personal loan is fairly simple and it similar to many other loan requests. Individuals may apply online to several reputable banks or in person at local branches. Most banks require you to:

• Fill out an online or paper application.
• Provide verification of at least one full month of income such as pay stubs, a letter from your employer, or most recent tax return.
• Provide a copy of your most recent bank statements.
• Present proper identification

Then what?

Once the bank receives your request, a loan officer will inspect documentation, analyze your credit score, and evaluate the risk associated with giving you an unsecured loan.

If for any reason the bank feels you may not repay the debt or finds your debt to income ratio is insufficient, a prompt denial is usually issued. In this case, there are alternate lenders that may assume your debt. These lenders often specialize in high risk, low income lending but put borrowers at risk with higher interest rates and predatory lending practices.

If your application is approved, a list of obligations will need to be presented to the bank for pay-off. The bank will then disburse the agreed upon funds to each creditor in order to satisfy the debt. Upon finalization, paid lenders should note your accounts as paid-in-full and notify credit bureaus of your discharge.

After approval and a set amount of time; usually 30 days after the loan is made, you will then be expected to assume repayment of the newly established unsecured loan. If you default on the loan by not making regularly scheduled payments, the lender is forced to initiate procedures to enforce your obligations. Common debt recovery practices include, but are not limited to:

• Wage garnishment
• Mortgage liens
• Negative reports to credit bureaus

As you can see, it is crucial when taking on the responsibility of an unsecured personal loan that you are fully prepared and able to repay the loan as agreed. Consequences for failure to pay back can be devastating for any future plans.

Not everyone has a home, portfolio of shares, or a business that they can pledge and use as collateral to secure a loan. With an unsecured loan, it is still possible to finance your dreams. Whether that be the dream car, the dream honeymoon, the dream wedding, or just the holiday that you always wanted needed. Getting a bit of a help with a lump sum injection via an unsecured loan can go a long way to jump starting your luxury lifestyle.

Of course, since there is no asset that you can offer the lender to back up your loan in case of default, the lender will require several proofs of your ability to repay the loan. This includes

• Age (must be over 18)
• Citizenship
• Employment
• Uncommitted Monthly Income (ie. income – tax – expenses)
• Place of residence
• Any guarantors

Factors that can improve your chances of approval for an unsecured income will depend on the stability of your employment (how long you have been employed and with the same employer, whether you’ve ever been unemployed), the amount of your monthly wages, how long you’ve stayed in the same residence, and of course – your credit history.

People with a bad credit record can still get a loan but you will be charged a much higher interest rate than normal. This can be expected because of your higher risk of default and the fact that there is no security offered as collateral. Normally in the case of a secured loan, if the borrow defaults on the loan then the lender can repossess the asset that has been pledged as security for the loan. In the case of a house, the lender can repossess the house or force you to sell it to pay the loan off.

Unsecured loans can be approved for amounts of $5000 to $100,000 dollars, depending on your personal profile, and be offered for 1 to 7 years (some lenders lend up to 10 years in certain situations). Be sure to check with your lender on the terms and conditions of such loans. What are the repayment periods, how much is the setup fees, are there any recurring fees, what are the fines for missing payments, what is the interest rate, etc?

Interest rates on unsecured loans are higher than normal, so one of the best ways to improve and lower your rate is to shop around. Comparing different loan types offered by different lenders can be easily down via a lending broker or even more conveniently via comparison sites online. Special websites have been set up to list a large selection of lenders and the interest rates, terms & conditions, and features offered. By having all the lenders and their unsecured loan products listed side by side, it is easier to compare and nail down the lender that best suits your needs.

As with all loans, always take the time to read the fine print, make sure you known exactly what you are signing up for, and be sure of what the exit conditions are for when you want to pay off the loan early.