So what do we mean by debt consolidation loan?
Put simply, debt consolidation loan is a low interest loan that you apply for with a bank or financial institution in order to clear off your high interest debt. So debt consolidation loan too is based on same principle as balance transfers i.e. moving from one or more high interest debts to a low interest one. The debt consolidation loan has to be paid back in monthly installments and as per the terms and conditions agreed between you and the dispenser of debt consolidation loan.
Credit card debt consolidation loan, in general terms, is an unsecured loan i.e. doesn’t require you to pledge any security. However, if you have a really bad credit history and you want go for debt settlement using debt consolidation loan, the debt consolidation loan will take the form of a secured debt consolidation loan. This type of debt consolidation loan requires you to pledge a security e.g. the home owned by you or something else that has a value which is comparable to your debt consolidation loan amount. So, worse the credit rating, the more difficult it is to get a debt consolidation loan.
Though balance transfers and debt consolidation loans have the same objective behind them, the debt consolidation loans are sometimes considered better because you end up closing most of your accounts which have been the main culprit in landing you in this difficult situation. However, balance transfers have their own advantages which are not available with debt consolidation loans. Choosing between debt consolidation loan and balance transfer is really a matter of personal choice.
