Debt is defined as an obligation or a sum of money payable from one person to another. A debt is generated when a person called creditor lends a specific sum of money to the other person who as the debtor who is supposed to repay the loan along with some extra amount of money known as interest.
However, there are particular terms which are decided upon before the money is lent to the debtor. The form in which the debtor will return the debt he owes to the creditor is decided in the very first place. This form of payment of debt is termed as standard of deferred payment. This is usually done in terms of money and some other times in the form of goods, certain assets or services. These payments can either be made at one or in increasing installments.
Debt leading to Debt Consolidation
There are various types of debts depending upon the purpose for which it is taken. Some of the various types of debts are as follows. The secured debt is the debt in which the creditor has the claim to the property of the debtor in case of his inability to repay the debt whereas an unsecured debt is the one in which the creditor has no claim to the property of the debtor. Private debt is concerned with the obligations of the band whereas the public debt comprises of the publically tradable instruments.
However, it is must for a person to classify his debts and clear them at the earliest to avoid any hassles. One such tools of clearing all the debts are called Debt consolidation. Debt consolidation refers to the technique of taking a final debt in order to clear all the outstanding debts at once. This has numerous advantages entitled to it.
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Debt consolidation is one of the most effective methods of clearing all the debts. This not only offers comparatively much low rates of interest but also enable the borrower to pay a fixed rate of interest on the amount of money borrowed. Besides this, it gives a great relief to the borrower as not only all the debts are classified into one debt but also they can be cleared easily without many hassles. However in the case of debt consolidation, although it is a secured loan, it may involve serving of an asset as the loan guarantee mostly a house. Assuring an asset against a loan provides the borrower with lower rates of interest and a convenience in repaying the debt. The risk in such a case is also negligible as the rate of interest is minimal.
However, debt consolidation is advantageous to those who have to repay the loans which have a very high rate of interest; by debt consolidation such a debtor cannot only repay the amount of loan at a faster pace but also be subjected to a comparatively lower rate of interest. Hence, a person must take everything into consideration before indulging into debts and must repay the debts in the allotted period of time to prevent and hassles whatsoever.