What is Debt Consolidation?
The world of finance or accounting can be complicated for some. Why? They contain some words that are hard to comprehend and are often misinterpreted. People who enter banks or other financial establishments can be puzzled by the words used by the professional inside. Not to worry or insolvency trustee Red Deer experts are here to help!
One definite word that has been giving people with headache is debt consolidation. One word is difficult to understand, but two words? That’s a different story, right? Well, if you want to understand debt consolidation, then you have come to the right place. This article will be answering your question, “What is debt consolidation?”
What is a debt consolidation? Many people are interested in this term. If you understand the first word, then you are close. If you also know the definition of the second word, then you are getting warmer. Debt or in other words, loan, combined with the word consolidation that means union defines the whole phrase.
Debt consolidation technically means availing a loan to pay bundle or bulks of liabilities or other financial burdens. People use this to pay not just one, not just two, but more liabilities that are involving money in the story. But you can avail of the debt consolidation in two types.
• Secured Loan
The first type of debt consolidation that you can use is the secured loan. Secure loan means that when you make a loan your assets such as a car, business, house or anything available will be tied. These assets that are tied to your loan will serve as collateral. Therefore, if you were not able to pay back the loan within the given time frame, the assets will serve as payment.
• Unsecured Loan
The antithesis to the secured loan, this one does not have any assets to it. Debt consolidation that is unsecured are not backed by your assets. Thus it is one of the hardest loans to obtain. Also, it comprises of a higher interest rate, compared to its counterpart.
Debt consolidation may look interesting, but there are certain qualifications for clients or customers to avail of it. The qualification or requirements may vary depending on the financial establishment you are obtaining. Debt consolidation may be offered by banks or credit unions and other financial institutions capable of doing it. Our Red Deer insolvency trustees can help with the process.
But you have to understand that debt consolidation doesn’t take away the original loan that you are paying. The bank or credit union will only be transferring your loans or liabilities to a different type of loan. And you usually have a time frame of three to five years to pay off the debt consolidation. And if you are not able to pay, then you know the consequences. It’s either your assets are taken, or you will be given legal action by the bank.
To other people, debt consolidation may be a good idea as it can pay bundles of liabilities in one go. If you are looking for possible solutions for financial burdens, then you may use this opportunity as long as you abide in bank or credit union regulations. Call our insolvency Red Deer trustee today and see how we can be of help!