There’s a couple to different types of consolidation loans – learn which may fit your situation best.
A debt consolidation loan is a new loan you obtain to pay off various debts you have.
A debt consolidation loan is usually acquired from a private lender and qualification may depend on your credit score, income and whether you own a house or not.
There are two variations of debt consolidation loans: secured and unsecured.
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 of Debt Consolidation Loans
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 of Unsecured Loans
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 of Unsecured Loans
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.
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.