There are essentially two basic categories of debt: secured debt and unsecured debt. When it comes to debt consolidation and debt negotiation, the kind of debts you have may determine what solutions to debt are perfect for you.
A secured debt is one for which the borrower needs to put some collateral. Collateral is a kind of a financial security for the lender. In case the loan is defaulted upon, the lender has the legal right to dispose of the collateral in any which way and recover some of the loaned amount through it. This is known as repossession. But it must be remembered that repossession may not let the borrower go off the hook. If the collateral is not able to compensate for the entire principal amount, then the lender would demand for the remaining amount. Then there would also be several fees to be paid for the foreclosure. Collaterals are usually needed for home and car loans. One further disadvantage with secured loans is that the borrower is not at liberty to negotiate on the interest rates later into the loan. Debt consolidation may also not be possible with such loans, since the lender has their own security. Even filing for bankruptcy may not free the borrower from the loan.
Unsecured debts are held solely based on the signed commitment to repay the loan under the specified terms and conditions. In order to qualify for an unsecured loan, you will need to have a good credit history and a high credit score. Unsecured loans will likely permit a debt negotiation with the creditor. Since they have no other guarantee that you will pay back the money you owe, creditors are willing to offer settlements of debts.
For all the advantages unsecured loans provide, they have higher rates of interest than the secured loans. Most borrowers in the US today have a combination of secured and unsecured loans. Whatever be the type of the loan, its management is the most important factor. Sometimes people need to begin by borrowing and repaying some secured loans before they can qualify for unsecured loans. This would improve the credit ratings. Anyways, both kinds of loans are potentials for improving credit ratings when paid back in time.