If you’ve gotten to the point where you realize that you’ve gotten in over your head with debt and are ready to do something about it you have to remember that you do have options. You can’t hardly turn on the t.v. without seeing information on how to consolidate debt. But no one method works for everyone. Find out which one is best for you.
The two main types of debt consolidation loans are secured and unsecured. Here is a brief description of each type and the pro’s and con’s of each:
Secured Loan
A secured loan will require some sort of collateral, usually your home. The bank doesn’t have nearly as much to risk with this loan since they can sell off the collateral if you default on the loan. It’s for this reason that a secured loan is generally easier to get.
You can use the loan to pay off all of your credit cards and be free and clear. As long as you have a steady income and don’t default on your loan payment you should be fine.
One potential pitfall of a secured loan is if you have bad financial habits. If the reason you had such high credit card debt in the first place was because you used credit to live beyond your means you could be in real trouble with a secured loan.
Why? Because you are likely to go right back out and rack up high credit card debt all over again. This time though you will also have the added burden of another mortgage payment along with your new credit card bills.
This is the downward spiral many homeowners have found themselves in and have been forced to file for bankruptcy.
Unsecured Loan
These loans don’t put your house at risk since they are unsecured, the bank doesn’t have any collateral. Since the bank is taking on much more risk they are far more careful about who they give these types of loans to. In order to qualify you will need excellent credit.
For the most part if your credit is that good you probably aren’t in any real trouble paying your bills off in the first place and don’t really need the loan.
If you do get an unsecured loan it will usually be for less than a secured loan. You will also be susceptible to using your credit cards and getting them back up to their limits all over again if you’re not careful.
Our society encourages us to take on debt. It’s really hard to resist the temptation. If you’ve fallen into this trap and want to learn how to consolidate debt than just make sure that once your debt is paid off you keep it that way. Only buy what you can afford to pay cash for. You’ll be much happier that way.