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Methods For Consolidating DebtDebt consolidation is the process of combining several debts under a new loan. Debt consolidation benefits the consumer by simplifying their payments and pacifying bill collectors. Usually, debt consolidation can procure a lower interest rate than your current outstanding debts. Most consumers accomplish debt consolidation with a personal loan. This is an unsecured loan which they acquire from a non-profit credit-counseling agency or credit union. Debt consolidation with an unsecured personal loan is risky because it will likely have a high interest rate and take a long time to pay back. Secured debt consolidation loans require some asset to ensure the lender recoups their loan in case of default. Debt consolidation loans are often secured with a borrower's mortgage or car title, but there are other options. Debt consolidation loans can be borrowed against a consumer's life insurance policy. Consumers who borrow against their whole life insurance policy do not have a time limit to pay back their loan; in fact, they do not really have to pay back the loan at all. However, if the consumer does not pay it back, the amount of the loan is deducted from the benefits paid to beneficiaries. Consumers can also borrow against their retirement fund for a debt consolidation loan. Most employers will allow an employee to borrow from their 401(k), but this should be the method of last resort. The downside of this type of debt consolidation loan is that if it is not paid back in five years, the IRS will assess taxes and penalties. Also, if the consumer quits their job, their employer will call the loan in full. Debt consolidation is, for many, a simple and easy way to get out of debt. Borrowing from one's life insurance policy or a 401(k) is an attractive option for many debt sufferers. Consumers should change their spending habits in accordance with debt consolidation to ensure they do not end up back in debt. Author Bio: Scott Sumerford has several years of experience working in the financial industry and has written a myriad of articles on various financial matters. He graduated from the University of Texas at Arlington where he worked as a writing center tutor and contributed to the university's newspaper, The Shorthorn. Read more about how Credit Solutions offers viable alternatives to debt consolidation.
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