Whether it is credit cards, student loans or personal loans, personal debt consolidation can help you get out of the whole that you inadvertently put yourself in. There are several components that come into play when you are dealing with personal debt consolidation.
Next to credit cards, interest rates are the next biggest culprits in causing debts. More and more people have bad credit meaning that more and more people have to pay insane amounts of interest. The interest rate for personal debt consolidation tends to be dramatically lower than what you would have on your credit cards, personal lines of credit and other interest on unsecured debts. The main reason for this is because a personal debt consolidation loan is secured debt and collateral is used as a guarantee on the loan.
Collateral for personal debt consolidation loans are commonly equity on your home if you are a homeowner or a vehicle if you are not. The collateral is a guarantee to the bank that you will pay your loan back. If you do not, then you will loose whatever collateral you put up to secure the loan. Believe it or not, the bank does not want to take your collateral. They do not want you to default on your loan and take you vehicle. What they do want is to help you make your payments on your loan on time. And they will do this by calling you and reminding you when you are late on your payment, even if it has only been a day or two.
If you do not have collateral to put up, you may be able to get an unsecured personal debt consolidation loan. These loans are harder to qualify for and the interest rate will be higher. These types of loans are more suitable to those individuals that have small amounts of credit card debt that they would like consolidate for convenience purposes.
The best debt for personal debt consolidation is unsecured debt with high interest rates. This includes debt from credit cards and personal lines of credit that have less than favorable interest rates. Your goal by consolidating this debt is to benefit from having to only make one payment and having a lower interest rate.
Debt that is not exactly suited for personal debt consolidation includes federal student loans, government related loans such as loans for first-time homebuyers and home equity loans.