The first thing to keep in mind is that debt consolidation is not a magic pill that you can swallow. Debt consolidation refers to a loan that will encompass all of your other debts and put them into one consolidated loan.

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The idea is that your monthly payment on your new consolidated loan will be less than the total of all of your other monthly payments put together. In theory, this could be just what you need in order to make it through some tough times. In reality, you are simply taking on another loan.

It's up to you to decide if this would make sense for your particular financial situation. Another option that you may want to consider is an attorney based debt resolution specialist. Your other options are debt negotiation or bankruptcy.

Unsecured Debt Consolidation

An unsecured debt consolidation loan would come from a company that simply offers an additional loan to your indebtedness portfolio.

Let's say you have 10 credit cards and you owe $10,000 on each card. When you add up the minimum monthly payments on these credit cards, your total monthly payment is $2,000. You might be able to find a debt consolidation loan that offers to pay off each of those 10 credit card companies. So, you would be getting a new loan for $100,000. Your new monthly payment of the consolidated loan might be $1,500 per month.

This would save you $500 per month. For some people, this savings could be enough so that they could continue to pay their bills without resorting to bankruptcy.

There are plenty of services that offer debt consolidation through negotiation with your creditors. One of the best debt solutions that we have found is NetDebt. The other three that we suggest you try are CuraDebt, Debt Shield, and 123 Be Debt Free.

You basically just have to look at all of your options and decide if the new terms and new interest rate and new monthly payments would be enough of a savings to save you. For some people, a secure debt consolidation loan could save even more.

A secured loan means that the creditor puts a lien on something of value that you own, such as a house. This means that if you happen to default on the loan, they get to keep the property that they have the lien on. The most common type of secured debt consolidation loan is a second mortgage or home equity loan (They are both basically the same thing).

You go to your home mortgage lender and apply for an equity loan. Let's say that you have a home that is worth $200,000. What really matters is how much equity you have in the home. Your equity is equal to the value of the home minus how much you currently owe on it.

For this example, let's say that you only owe the mortgage company $100,000. This means that you could probably get a home equity loan of around $100,000 (The home is worth $200,000, you owe $100,000, the difference is $100,000). Using the same example from above in the 'unsecured debt consolidation' section, you could now use your $100,000 secured debt consolidation loan (home equity loan) in order to pay off each of the 10 credit card companies.

The major benefit with this type of loan is the interest rate. A secured loan through home equity usually has an interest rate that is far lower than what you could get through an unsecured debt consolidation loan. Instead of paying $2,000 per month on your current minimum payments for your credit cards, you might now be able to pay only $1,000 per month on your home equity loan.

A savings of $1,000 per month could definitely be enough to some people out of trouble. Do keep in mind that the figures that we are using here are completely fictional and are used simply for this illustration. It's just a way to give you an idea of the types of savings that you could possibly get with these options.

The main thing to remember about getting a debt consolidation loan through a second mortgage is that you would be putting the home that you live in at risk. This is something that should not be taken lightly.

If considering an unsecured debt consolidation loan, you should take caution when choosing a company to go with. Be sure to read all of the fine print. As with just about anything that you might be considering regarding your debt, it is advisable to speak with a qualified attorney before you make any big decisions.