A new debt management tool that is garnering attention is a loan that pays off existing debts, saves you money, and can also save your credit. It is called an unsecured debt consolidation loan (UDCL). When applying for an UDCL, your first step should be determining exactly how much you need to borrow. The amount of the UDCL must cover the entire amount of debts you owe to unsecure creditors including store credit cards, signature loans, etc.



Compare interest rates between your existing loans and the UDCL. You certainly want to be careful not to trade up to a higher interest rate when you are attempting to lower your overall payments. If the UDCL is higher than your credit card loans, you may ask the lender of that card to consider allowing you to transfer balances to his account. This would actually save you money in the long run and save you having to enter into another loan agreement.

Shopping for the best lender for an UDCL is like shopping for anything else. You must shop around. Compare products and lenders like you would compare models of cars if you were in the market. They all have different products and services and you want to take time to pick those that best meet your needs. Look as carefully at loan terms they offer including length, amount limits, interest rates and whether or not they use fixed or variable interest as if you were investing the money in the market and not just looking to consolidate debt. Of course, keep in mind the interest rate and loan limits will be influenced by personal credit history, ratios and equity.

After you have decided on a UDCL provider, be prepared to submit copies of all creditor statements the loan will be paying off. Normally the lender will pay these creditors directly with no money passing through your own hands. The whole process can seem time consuming and slow, but it certainly is well worth it if in the end you attain the most important goal: reducing your overall payments being paid out on a monthly basis and the amount of interest attached to those payments. As was the case with the consumer debt that was consolidated, the interest paid on the credit card debts or personal loans like a UDCL is not tax deductible under most circumstances. If you have any questions about your personal situation, you should refer them to a tax professional.