What Are the Different Types of Debt Relief Loans?

Debt relief loans are loans that are extended for the express purpose of allowing individuals and businesses to pay off outstanding debt and arrange finances to better advantage. Loans of this type may be used for debt elimination or as a means of arranging a debt settlement which includes reduction of the total amount due to one or more creditors but requires immediate payment. While there are variations, loans of this type can usually be classified as secured and unsecured relief loan arrangements.

With secured debt relief loans, the debtor must pledge some sort of collateral in order to qualify for and receive the loan. Requiring the pledging of some asset as collateral on the loan is not uncommon, especially when the total balance of debt to be retired is higher, or if the credit rating of the debtor is not the best. For example, the debtor may pledge real estate or some other asset in order to obtain the loan, making it possible to secure a lower interest rate. This in turn can help to minimize the amount that is repaid to the lender over time, which further aids in helping the individual get out of debt.

Debt relief loans may also be structured as unsecured loan arrangements. Depending on the credit-worthiness of the applicant, this approach makes it possible to secure the funds for debt relief, eliminate other debts, and be left with only a single obligation to pay off according to terms. Typically, the goal is to obtain a loan carrying a lower rate of interest than the debts that will be retired with the proceeds. When this is the case, the debtor can experience a significant amount reduction of stress as well as be able to position the monthly budget to better advantage.

Debt consolidation loans are one of the more popular types of debt relief loans, and usually offer the bonus of arranging for the lender to send payments directly to the creditors who are to be paid off by the proceeds from the loan. Loans of this type may be secured or unsecured, and may be financed for a period of less than a year or for as long as five years. Many financial institutions offer debt relief loans of this type, with some also offering free financial service and support to aid customers in developing workable budgets and avoiding the potential to repeat past mistakes which lead to the accumulation of more debt.