While debt consolidation has numerous benefits to the borrower of the loan, it also comes with some downsides, especially if you are consolidating unsecured loans into a single secured loan. Remember that the initial loans were unsecured and now you are securing your new loan with your assets. This means that you are putting your assets at risk so that if you do not pay the loan, you stand to lose your pledged property, life insurance cover, retirement fund or whatever security you’ll have placed against your loan.

Nobody wishes not to pay his or her loan, but in a world full of uncertainties and economic hurdles, you do not want to gamble with your hard-earned assets, alright? In addition, the term of secured loans are often longer than the term of the security obligations you project to consolidate. This could mean that the total interest over the term is higher than the interest you would have to pay on each of the separate debts, even if the monthly repayment may be lower.

Debt Consolidation Through Unsecured Loans

While unsecured personal debt consolidation loans are becoming popular in modern lending practice, they are likely to be less accessible to many people who need them. When seeking unsecured debt consolidation, the borrower is expected to have above average credit score. Often, low interest, introductory rate on your credit card may be used to cushion against the risks associated with unsecured loans.

Pros of Consolidating With an Unsecured Loan

One of the benefits of consolidating your loans with an unsecured loan is that you do not put your assets at risk of foreclosure in the event you are unable to repay the loan. And even though the interest rate of such a loan may be higher compared to to secured loans, it may still be lower that what might be charged on individual credit card balances, thus reducing the overall interest rate burden of the borrower.

Cons of Consolidating With an Unsecured Loan

An unsecured Debt Consolidation Loan might be difficult to access by an average person with less than good credit. Therefore, a majority of the people looking to consolidate their debts may not qualify. In addition, the interest rates on these loans are usually damn higher than the interest charged on secured loans. What this means is that you may not realize much difference in terms of reduced repayment burden.