Secured Debt Consolidation
If you have multiple debts and you are finding it difficult to make your monthly payments, you may consider obtaining secured debt consolidation loans to help your cause. While many borrowers may benefit from these loans, they are not the best choice for everyone.
You can end up losing a lot with this solution. That's why it's important to learn the nitty-gritty details before you apply. This article walks you through the benefits and drawbacks to using this solution for your debt situation.
You'll have a much better idea of whether this loan option is right for you. And you'll learn how to approach it.
What is Secured Debt Consolidation?
A secured loan is a financing option offered to
consumers who wish to combine multiple existing debts into a single
Unlike unsecured loans, these particular loans require collateral. In most cases, lenders will accept a car, home or another valuable asset as collateral for the loan. If the borrower is unable to make the payments on his or her loan, the lender can take the collateral and sell it to recover the remainder of the unpaid debt.
The most common options are the home mortgage refinance and the equity loan or line of credit. Which means that your home will be used as the collateral. So this type of loan is very risky for you.
You can wind up losing one of your more valued and prized possessions. That's why deciding whether to choose this option requires careful consideration.
You should not take this decision lightly.
Benefits of Secured Loans
1. Reduces number of payments.
When you owe multiple debts, forgetting to make one or more of your monthly payments is all too easy. Consolidating your debts into a single loan reduces the number of payments you must make each month, which simplifies your monthly bills considerably.
2. Lower interest rates.
Most credit cards carry high interest rates that make it difficult for you to pay down the balance, especially if you can afford to make only the minimum payment each month. Debt consolidation loans often provide lower interest rates than credit cards, thus decreasing the amount of interest you pay overall and making it easier to eliminate the debt altogether.
3. Opportunity to improve credit.
If you make all of your debt consolidation loan payments in full and on time, your credit rating will improve. This can be especially helpful if you have had trouble making payments in the past because of high-interest debts.
4. Fewer calls from debt collectors.
If you have been receiving calls from debt collectors, obtaining a consolidation loan to cover the debts in question will stop them from contacting you.
5. Easier to obtain than other loans.
Because you offer the lender collateral, secured debt consolidation loans are much easier to obtain than unsecured, especially for borrowers with poor credit scores.
6. May be able to borrow more.
And thanks to the collateral, you may also qualify for a larger loan amount than you would have if you had opted for an unsecured loan.
7. More flexible terms.
These loans typically come with more flexible terms than their unsecured counterparts, allowing you to repay your debts in smaller increments over a longer period of time.
The Negatives Associated With These Loans
There are some real and considerable risks involved with these types of loans. These risks must be taken seriously and paid close attention to. Otherwise, you can lose everything you worked so hard for.
1. Risk of losing collateral.
If you stop making your payments before the loan is paid in full, the lender will take possession of the asset you offered as collateral.
2. Possible effect on credit score.
Entering into certain types of debt consolidation programs may cause a temporary decrease in your credit score.
3. Temptation to take on more debt.
Debt consolidation loans typically lower your monthly payment and eliminate all of your outstanding credit card balances, which may make it easier to take on more debt.
Making Your Decision...
Deciding whether to apply for the secured debt consolidation option can be challenging. However, if you are struggling to make payments on multiple high-interest debts, applying for this option may be beneficial.
If you aren't sure whether this solution is right for you,
consider talking to a reputable debt counselor who can help you
understand your options and make the best choice for your financial