An important consideration for individuals carrying a significant amount of debt is the fact that debt consolidation loans do not require collateral to be produced the debtors.
Most financial professionals would agree that it is generally unwise to replace unsecured debts (those that are not backed by any collateral) with a secured loan.
The terms may be more attractive, but making this chance places otherwise unencumbered assets into the sites of one's creditors.
This is not the purpose of taking a debt consolidation loan to address the financial challenges created by large amounts of unsecured debt.
As such, it is important to understand that even with bad credit and no collateral, it is possible to obtain this type of loan and better one's overall position.
The reasonable question that may occur to an individual considering taking this type of loan is to ask why a lender would be willing to extend credit in these circumstances without collateral.
These lenders assume that a percentage of these loan may default, but their objective is to put the debtor into a position where managing their debt can be effectively managed.
They understand that people become over-extended at times, and that extending these individuals a little help can get them back on the right path.
Once this new path is designed and started down, the hope is that the debtor will take advantage of the situation and do better.
Under debt consolidation, a debtor takes one large loan to pay off a series on smaller loans - these smaller loans are often credit card bills or other high interest rate debts.
The new loan is written with more attractive loan terms that are designed to benefit the borrower without significantly hurting the lender.
The belief is that the two biggest challenges and over-extended borrower faces are managing too many payments and meeting a high monthly payment amount.
The consolidation loan, by definition, solves the first issue because there is only one loan payment that now needs to be made.
The second problem is addressed by lowering the interest rate and, often, extended the repayment period.
With a lower net monthly payment, the borrower is now able to successfully service their debt.
Working with a reputable debt consolidation service can help you to achieve these results and ultimately work towards becoming debt free.
With proper assistance, it is not necessary to pledge collateral to address the problem of substantial debt.