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Secured Consolidation Loans
A secured loan to consolidate debt is one which you guarantee the loan with a particular asset. This is most often done in the form of home equity loans. A portion of the equity in your home is used as collateral in order to qualify for the new loan. Of course, when you do this you risk your home should you become unable to repay the loan.
While other types of debt can be consolidated, it is typically credit card debt that is consolidated because of high interest rates and additional fees. If you don't pay your credit card bills, the creditors have little recourse, but when you convert that credit card debt to secured debt, as in a secured debt consolidation loan, the lender can go after the asset that you pledged as collateral, typically your house.
It is not usually advisable to convert unsecured debt to secured debt. However, if you are near bankruptcy, this principle takes a back seat to your financial survival.
Benefits
With a secured debt consolidation loan, you will generally get
lower rates than with an unsecured loan, and the interest you
pay to the lender is generally tax-deductible if the loan is
secured with real estate, as in a home equity loan.
Unsecured Consolidation Loans
On the other hand, an unsecured debt consolidation loan is a loan that does not have any collateral but is also used to pay off the other debt you owe. This type of loan is a better idea over a secured debt consolidation loan, since no assets are at risk.
If you have already gotten behind in your debt payments, it may be almost impossible to get an unsecured debt consolidation loan, as your credit will play a major deciding factor in the qualification process.
Benefits
The biggest benefit of an unsecured loan is that of you fail to
pay, you are not risking your home or any other assets. Of
course, you may be sued and your credit rating will suffer, but
you will have a place to sleep.
Drawbacks
You will generally pay higher interest rates and have higher
monthly payments with an unsecured debt consolidation loan and
the qualification process is much more difficult.
Conclusion
Although it may be confusing to understand all your options, we try to present our experience as well as all the possible options here at debt-free-destiny.com so that you can make an informed decision.
After doing your research, the next thing to do is to get a free consultation and talk to an expert who can take the specifics of your situation and recommend a solution for you. There is never any obligation, and the advice you get is free. We recommend several companies who can give you this advice and remember, you need to be informed to make an intelligent choice.
| CuraDebt is one company that offers a wide variety of consolidation programs and will give you a free consultation. |
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Did You Know... |
49% of adults, and 66% of US high school students got F's on a national test on their knowledge of basic economic principles.
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Food for Thought... |
"I'd rather go to bed without supper than rise in debt."
-Ben Franklin.
