Accelerated Debt Consolidation: Is it Right for You?

The process of accelerated debt consolidation can help you take control of your financial situation. Debt is a massive problem for consumers today and many of them need help from someone else. Here are the basics of accelerated debt consolidation and how it works. 

How it Works

Accelerated debt consolidation is a process that allows debtors to consolidate all of their unsecured debt into one place. One way to do this is to take out a low interest loan and pay off all of your unsecured accounts. This will provide you with one monthly payment and help you pay off the debt faster because the interest rate is usually significantly lower. This is a good strategy to utilize, except it will require someone that has a good credit history in order to get the loan.

Another to use the accelerated debt consolidation is to use a credit counseling service. With this method, the consumer hires a credit counseling service to set up a repayment plan for them. The credit counseling service contacts all of the client's creditors on their behalf. They negotiate new interest rates and monthly payments with them and therefore, could lower the monthly payment for you. 

When you use the second option, your creditors will usually require you to close all of your credit card accounts and not take on any more debt during the repayment period. They will typically lower their interest rate by quite a bit, so this can be a beneficial method to eliminate your debt if you do not have the credit to get another loan.

Unsecured vs. Secured

This type of program focuses on consolidating and eliminating unsecured debt, instead of secured debt. The difference between these two types of debt is collateral. A secured loan is one that is secured by some piece of collateral. An unsecured loan is not based on any collateral and is awarded purely based on your credit, income and your promise to repay the loan. 

A few examples of secured debts are mortgages and auto loans. If you default on a mortgage or car loan, the lender will attempt to take back their collateral, such as foreclose on your house or repossess your car. They can then sell their asset and get the majority of their investment back.  

The most common examples of unsecured debt are credit cards. With an unsecured debt, the creditor is not afforded the luxury of being able to foreclose on any property. Since there is no collateral, unsecured debt usually involves a much higher rate of interest, as a result for the increased risk.

Why Unsecured Debt Only?

The accelerated debt consolidation process will not allow you to include your mortgage or car payments in the consolidation. The reason for this is the time commitment involved. If you want to get started repaying your debt quickly, involving your mortgage is not going to speed anything up. When you use collateral, appraisers have to be used to determine the value of the property before anything can be done. Skipping the complicated process that comes with a secured loan allows creditors to get started quicker. 

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