Consumers who find themselves with a lot of debt, especially surrounding credit card balance usually resort to credit consolidation as a solution to their financial problems. However, this is one of the major financial decisions that consumers should research on in order to make the best loan choice in consolidating their debts. Such things to consider are the interest rate that come with debt consolidation facilities for borrows with large credit card debt. The options that exist for those indebt include a home equity loan if they own a home. Prior to making this choice, make use of the debt consolidation calculator to have an overview of the monthly payment options.
So, what is debt consolidation? In debt consolidation, the consumer is usually given a loan to cater for all of their smaller loans hence leaving them with a single monthly payment other than making payment for several loans. One of the common beliefs is the perceived advantage of easily managing a single payment. The objective is to get a lower rate of interest and a decreased monthly remittance while still able to pay off your debt quickly. Here are pros and cons of a consolidated credit that you need to consider. However, these depend on whether there is a security for the facility.
Secured versus Unsecured Loans
Secured loans are loans that are accompanied with a certain property to be used as collateral against them. Things that could be used as security include your car or a home. For instance, a mortgage loan security automatically takes up the house as security. On the other hand, unsecured loans don’t have such items that can be used as collateral against the loan. It is important to note that unsecured loans due to their high-risk nature have a higher rate of interest.
- Consolidation with a Secured Loan
- The interest rates are normally lower than is the case with unsecured loans. Ideally, they will help you save a lot of money through interest accrued.
- With the low interest rates, your monthly remittances will most likely be much affordable and easy on your part.
- In some occasions, you may get tax deductible on interest paid especially if your loan was secured through real estate.
- The secured loan is easily obtainable due to the low risk involved since the you will have placed a certain asset as collateral.
- Generally, a low interest rate with a secured loan will ease your financial problems
- The pledged property on collateral basis is put at risk. In the event that you will not be able to clear the loan, you will definitely use your property or whatever thing you used to secure the loan with.
- Certain securities such as retirement funds or life insurance funds may not be available for your use until you have cleared the loan.
- The payment term may be longer than the debt obligations term that was consolidated. As a result, the interest rate paid at the end of the day could be greater than that of the individual debts. Consolidation with Unsecured Loan
- None of your properties will be at risk because this loan is usually given without any asset to be used as collateral
- Even though the interest rate could be higher than that of a secured loan, it could be less compared to various credit card balances. This lowers your payment burden and the accumulated interest in the end.
- Getting an unsecured load is not easy especially if your credit rating is not desirable. In that case, you may not find a quick solution to consolidate your debts.
- Unsecured loans present high risks hence attract high interest rates than those of secured loans. This may lead to payment that may not make a significant impact on your financial woes.
- The rules that govern the qualification of an unsecured loan may diminish the benefits that you are looking for.
- Should you fail to pay the debt within the set time, you will even end up paying higher rates than before.
There are benefits of debts consolidation with a single loan and that may include making lower monthly remittances. This works a great deal to provide you with a financial and emotional relief. Moreover, it leaves you with some confidence concerning your financial status. This could make you feel sorted and then let your guard down hence plunge into more debt prior to paying the consolidation loan. To avoid this cycle, look at both sides of the coin to keep you focused in coming out of this situation.