A debt consolidation loan combines multiple debts from credit cards, personal loans, and other bills into one loan with one monthly payment. This can sound exciting because it is often advertised as "lowering your overall interest rate with one affordable payment, helping you save money, and pay down debt faster."
Sometimes this is true, especially if your debt has high interest rates and your credit score is good. But usually, the more debt you have, the poorer your credit score will be. So a consolidation loan may actually come with a higher interest rate than your other debt.
To get a consolidation loan, you'll need to provide proof of income, a decent credit history, financial stability, and sometimes have to pledge collateral, such as title to your home or car.
When you pledge collateral, your consolidation loan becomes secured. When you do not pledge collateral, your consolidation loan will be unsecured. Unsecured debt is typically wiped out, or discharged, in chapter 7 bankruptcy. Secured debt can be eliminated in chapter 7 bankruptcy by surrendering the collateral.
Before you get yourself deeper into debt, contact Doan Law Group for a free consultation. We'll help you see the big picture and make a decision that will help you become debt-free.