An agreement on collateral against the loan gives a lower interest rate for the loan, as the risk factor decreases. Naturally, if there's no collateral against the loan, lenders don't have any form of security for their money and they resort to charging a higher interest rate. So if the true purpose of debt consolidation must be achieved, it is advisable to keep an asset as collateral so the lenders can make a forced sale on non-payment of the loan and so that the borrower can receive the low interest rate he's looking for.
This method has been proven successful when dealing with credit card debt, as credit cards often carry a much larger interest rate than even unsecured loans. In an interview, Kerri Cole talked about her practical experience in dealing with her debt problem. She went to Credit Consolidation Services and got her interest payments reduced on all 9 credit cards she owned; one of the card's interest rate fell from 27% to 9%. For a small monthly fee, she is saving over $600 a month since she started debt consolidation which makes a rough figure of $7200 saved each year. Though some companies tend to take advantage of these situations and indulge in predatory lending, the particular company Kerri talks about has been refreshingly fair and accommodating to her problem. Predatory lending is a term used for lenders who use deceptive methods to convince borrowers to agree to harsh and unfair loan terms, or the systematic violation of the terms by the lenders in such a way that it is very hard for the borrower to defend against it ('Predatory lending,' par.2).
In recent reports, media has raised concerns over debt consolidation. They have pointed out that a large majority looks to reduce their interest rate by converting their unsecured loans into a secured loan. The problem arises at their choice of asset to secure the loan against. Most people tend to secure their loans against their home ('Debt consolidation,' par.13) which is a dangerous practice; putting at risk such a valuable asset would certainly not be the most advisable thing to do. The monthly payment does get lower, but the actual amount repaid over the years is often significantly greater in proportion due to the long period of loan. What people argue is that debt consolidation mostly cures the symptoms of the problem and doesn't hit at the root cause of the disease.
To owe someone money is always very stressful. The stress is compounded when you owe money to not one, but quite a few lenders. Debt consolidation can provide means to develop a workable budget, and it would greatly reduce the stress level by bringing the number of lenders down to one. This would also be beneficial in the sense that one is less likely to forget a due payment of a single lender than attending to a large number of lenders, each with their own separate terms. Often it happens that because of a non-payment, you get further fines and charges on late payment; a debt of $500 could rise to $700 just because of an imposed fine. Debt consolidation will lessen that amount back to the principle amount (Selman, par.3). So, through debt consolidation we are looking at numerous advantages like no fines or monetary charges, reduced number of lenders, a lower interest rate and no warning calls. Also with your credit rating improving because of debt consolidation, if you are looking for a new