What is Debt Consolidation?
Debt Consolidation is a loan that groups all your outstanding debts into one single payment. It replaces your multiple debts. You borrow money from a lender. If your loan is approved, you can pay off all your multiple debt. By doing this, it makes payments more manageable to reduce and eliminate what you owe.
Debt Consolidation Loans: Secured loans
Debt consolidation loans are one of the most common solutions when you fall victim to financial hardship. Unfortunately, people who choose debt consolidation often find themselves with a larger debt and in a deeper financial trouble. The reason this happens when taking out a consolidation loan, is that you will most likely be required to secure the loan against some form of asset, such as a car, property, home, computer, TV etc.). You then have turn your debt consolidation loan into a secured loan. When you put something that you own to provide collateral and you fail to make a payment. You could then lose your collateral if you are unable to pay on the new loan. This can put you at risk of going even deeper into debt.
Debt Consolidation: Unsecured Personal Loan
When taking out an unsecured loan you do not put up any collateral. This type of loan has a higher interest rate and often comes with hefty penalties if you do not pay on time. You also need to have a good credit so you can borrow a low- interest rate personal loan to make it affordable.
With both types of consolidation loans you run risks. There is the risk of losing your collateral if you are unable to pay on the new loan. And the risk of going even deeper into debt.
Debt consolidation loan/ Home Equity Loan
You may be asking yourself: How do I qualify for a home equity loan to consolidate my debt? To qualify you must have a home and you must have equity in your home. So your home must be worth more than what you owe. If you are able to get a home equity loan. You have now put your unsecured debt into a secured loan. And you have now put your personal asset at risk. If you may run into difficulty down the road paying on your home equity loan you could run the risk of foreclosure.
If you’re reading this, it’s likely you’ve been researching ways to get out of debt, or to improve your financial situation with regard to debt.
Let one of our trained debt consultants evaluate your financial situation to determine if Debt Consolidation is right for you.