Consolidate debt with a secured loan?

Everything was going well at first—you had a new job, bought a new car and secured a new home as well. You had no trouble making these payments until your credit card debt got the best of you. Going out for frequent dinners and charging it to the plastic card was something you always managed to pay off before the new mortgage and car payments came into your life. Now you are left with $10,000 in unsecured debt that is causing you major stress. Maybe it’s time to consider a secured debt consolidation loan.

What is a secured debt consolidation loan?

A secured debt consolidation loan means that you receive a loan that is secured by some form of collateral you own, usually a home. Many homeowners find themselves eligible for a secured debt consolidation loan when the value of their home increases. They can take out a loan based on the available equity in their home, using this loan to consolidate debts or for home improvement purposes. In these cases, it is sometimes referred to as a home equity loan.

According to a consumer survey put out by LendingTree Inc., home equity loans are on the rise, with 2004 being a record year for borrowing against the equity of your home. Their survey results indicate that the number of people turning to home equity loans has doubled from 2003 to 2004, with debt consolidation one of the top priorities of 31.9% of people who got a home equity loan. “Trading bad debt for good debt,” as many people see secured debt consolidation loans as doing, is an effective way to lower the interest rate on your unsecured debt.

To learn more about secured debt consolidation, click here.

Is a secured debt consolidation loan the right thing for you?

Not everyone is eligible for a secured debt consolidation loan. In order to get one, you must have some form of collateral that you are able to attach to the loan as a form protection for the lender. However, secured debt consolidation loans often offer very low interest rates, compared to unsecured debt consolidation loans, a definite advantage for people looking to pay off their high interest debt as quickly as possible.

Under certain circumstances, however, even those qualified for a secured debt consolidation loan should think twice before signing up. For example, let’s say you have a spouse and a few children and are surviving on one income only. Your income has to be stretched pretty far to make ends meet each month and you are barely getting by; in fact, sometimes you miss more payments to certain creditors. Because a secured debt consolidation loan means that you are placing your home in risk if you default on loan payments, those people who are having serious financial trouble shouldn’t consider getting one for fear that their house will be seized.

In cases like this, an unsecured debt consolidation loan may be better for you, even if the interest rates are slightly higher. Before you decide on a secured or unsecured debt consolidation loan, talk to a debt management expert who can help you decide what will work best for you and your family.

For more detailed information on secured debt consolidation loans, contact us here.

How Do We Compare?
Read about how Debt Consolidation Counselors is different than most credit counseling and debt settlement agencies out there.

Do You Qualify?
Find out if you qualify for the DCC program.