Debt trap is like a maze – it is very difficult to come out of it. Once you become a victim of a high interest loan, you keep on taking out new loans to repay the old ones. It is often quite difficult to keep track of so many loans and this may lead to bankruptcy. If you think that you will not be able to repay your loan, then you can declare yourself bankrupt. Once you are declared bankrupt, you will be free from all your debt obligations. However, bankruptcy remains in the credit score for seven to ten years. Therefore, you must try and repay your loans instead of declaring yourself bankrupt.

One way to avoid bankruptcy is to avail a debt consolidation loan. Debt consolidation helps you keep track of your debt. It combines all the high rate loans into one low rate loan. A low interest rate will allow you to pay small monthly installments. Debt consolidation loans are both secured and unsecured. You must go for a secured debt consolidation loan since it carries a low rate of interest. An unsecured debt consolidation loan is a high rate loan and so it defeats the very purpose of consolidating high rate loans into a low rate debt consolidation loan.

There are several types of debt consolidation loans. A homeowner’s debt consolidation loan is secured against a house. It is a type of secured loan and offers all the benefits of a secured loan such as low rate of interest, flexible repayment terms, small monthly payments, etc. In case of a default in the repayment of a homeowner’s debt consolidation loan, the house against which the loan is given may be repossessed by the lender. Another type of debt consolidation loan is a personal debt consolidation loan. Just like any other personal loan, a personal debt consolidation loan can be secured as well unsecured. Another way to consolidate your debt is to transfer your unpaid credit card balance to a new credit card which offers a low rate of interest. Find a credit card issuer that does not ask you to pay transfer fees.