The best way to consolidate your debts – Secured and Unsecured – part 2

Hi folks…This is the continuation of the last post, enjoy and share if you like it. Hopefully this post will enlighten your ways to fight against your debts through debt consolidation option.

Disadvantages of using secured loan for debt consolidation

There is a big disadvantage to consolidating unsecured debts into single secured loan. You need to first put any of your assets as a collateral. You are actually putting the pledged property at risk. If you become unable to pay the loan, your property will be seized by the lender. That means your house, cars, insurance policies, may be retirement savings or other assets will be taken over by the bank. Few assets, like life insurance or retirement savings will also not be there when you need them until the loan is not paid back.

The total time frame of a secured loan is always longer than the debts you are having. So, it will make the total interest greater than the interest you might have paid on the unsecured debts. It will still be higher even your monthly payment is considered much lower than the usual.
Consolidating your debts through unsecured debts
Today unsecured personal loans are quite common, but unfortunately they are not so easily available to the common mass. Normally, to get an easy unsecured loan, you need to have a very good credit score. For this reason, a low interest credit card sometimes may be used as a substitute for an unsecured loan.

Debt consolidation using an unsecured loan – Advantages :
The main advantage of an unsecured debt consolidation loan is that you don’t have to pledge any property as collateral. For this reason, the interest rate becomes a little higher compared to a secured loan. But it is also lower than the different card charges, so it is quite popular for lowering payment.

Debt consolidation using an unsecured loan – Disadvantages :
An unsecured loan for debt consolidation purpose will be difficult to get, unless you have a sterling credit. Most individuals who required debt consolidation loans may not get the approval for this loan. Normally, interest rates are quite high compared to a secured loan. So, you may have to pay higher interests per month, that means a big amount of installment. Apparently your payments are not going low enough, so it would not help to improve your financial situation.

You might think twice before using the balance transfer method on low interest credit cards. You might have to pay a transfer fee which will be deducted from your balance. There are some associated rules also which makes it difficult to avail. If you ever utilize the low interest credit card apart from paying down the debts, it will generate charges like additional interests. Payments will be applied initially to the no-interest balance, so as the interest also. Above all, the bill payment period of the no-interest card is shorter and limited normally. If you decide not to pay the debts during this time, you will sure have to end up paying heavy interest as soon as the special offer period ends.

If you want to start consolidating your debts through a single monthly payment, you’ll get the benefit of affordability as well as lowering your monthly installments. Apart from that you’ll have financial and emotional relief along with a confidence to know your financial status. But beware, this situation may also lead you to take wrong decisions and occur additional debts way before you pay off your existing debts.