What Is the Best Type of Debt Consolidation Loan?
For anyone, dealing with debt can be an incredibly emotional, and frustrating experience, particularly when you’re struggling to get control of your finances. Whether you are dealing with consistent medical debt, credit card loans, or a mortgage you simply can’t afford to pay, money worries can easily leave you feeling overwhelmed and even depressed.
If you feel like you’re struggling to keep track of all of your outgoing expenses, and you’re not sure how to make your money stretch far enough, then you might consider using an option that has allowed thousands of Americans to enjoy a simpler lifestyle. A debt consolidation loans can give you some breathing room in your current financial situation, and help to bring order back to your life.
For many people, debt consolidation loans can be incredibly helpful – particularly if you owe a lot of money to a lot of different people. However, just like any other kind of loan, it’s important to make sure that you’re making the right decision.
What is a Debt Consolidation Loan?
A debt consolidation loan is a way to pay off your existing debts with one personal loan, combining a range of different financial concerns into a single monthly bill with its own new interest rate. The goal is to reduce the number of bills that you’re keeping track of each month and potentially minimize the amount of interest you need to pay on your outstanding obligations too.
Debt consolidation loans can be unsecured, which means that they’re only guaranteed by the promise you back to the bank to repay what you owe on time. Obviously, you’ll still be expected to take the loan seriously, and adhere to the repayments that you agreed to with your terms and conditions, however, your loan won’t be tied to any kind of physical asset.
On the other hand, secured loans are secured because the bank can take one of your assets to regain the money that they lose if you fail to make payments. For instance, most of the time, secured loans are secured against your home or car.
Should You Get a Secured, or Unsecured Loan?
Deciding whether to get an unsecured or secured loan is something that will be entirely down to you. The biggest benefit of an unsecured loan is the fact that it can offer you some significant peace of mind. Unsecured debt consolidation loans don’t ask you to put any assets up in collateral, which means that if something happens and you can’t repay, you don’t stand to lose anything important, like your home.
However, if you do feel confident enough using a secured loan, these options have a range of benefits to consider too. For instance, most secured loans will come with far lower interest rates, although the exact rate you will be required to pay will depend on your loan size, credit score, location, and other key factors.
Some of the other benefits of secured debt consolidation loans may include:
• Requirements that are less strict: because your lender has the protection and peace of mind that comes with knowing that he or she can repossess the collateral that you put up for security in a secured loan if you default, you don’t necessarily need a great credit score. Some lenders will accept very bad credit scores because you’ll be able to get extra benefits for simply choosing a secured loan.
• Better terms: Most of the time, secured loans will also come with more lenient repayment requirements. For instance, home equity lines of credit might allow balances to remain on an outstanding basis for as long as 25 years. This can help to reduce your monthly obligations and increase the likelihood that you’ll be able to pay your bills.
• Better borrowing limits: Depending on the value of the collateral that you put up as security for your loan, you may be approved for a larger amount. While lenders typically require very good credit for unsecured loans that are more than £30,000 in value, you will be able to borrow up to 85% of the equity in your home when you take out a secured loan.
Should You Consider a Debt Consolidation Loan?
Both secured and unsecured debt consolidation loans have their own distinct advantages. For instance, you can simplify your monthly repayment schedules, reduce your interest rates, and rebuild your credit – particularly if you’re able to start making your payments on time each month. However, debt consolidation loans might not be right for everyone. Make sure you consider your options carefully before you make your decision.
