If you are looking to get eliminate your debt, debt consolidation is probably the way to go. A debt consolidation loan is a decision many people make to eliminate the stress of debt. If you have a lot of debt, you are probably paying a significant amount of interest.
With a debt consolidation loan, you are likely getting a more favourable interest rate. That means you can save money while getting lasting debt relief. After that, all you have to do is repay the loan you got. There are two major types of debt consolidation loans. Here is a look at the differences between secured and unsecured loans.
With a secured loan, you are putting up collateral. Lenders are more likely to approve you for a secured loan because they have protection if you default. Houses and cars are commonly used as collateral to secure a loan. Other lenders may allow different assets, including jewelry and other personal possessions. The fact that you have an asset gives you a lot of flexibility with obtaining your loan. Most lenders will be more than happy to accept your car or house as collateral in exchange for a loan. You might even get a decent interest rate out of the situation. Another advantage is that your payments are tax deductible. The obvious risk comes if and when you default. Defaulting on a secured loan means you will lose your collateral.
An unsecured debt consolidation loan
is one in which you don’t put up collateral. The big advantage here is that you aren’t at risk to lose any assets. On the flip side, it is much harder to get approved for such a loan. A lender isn’t as likely to give you a debt consolidation loan if you have no collateral and a poor credit rating. In some cases, an unsecured loan is your only option. If you don’t have a home or car, you may have no other choice. An unsecured loan will carry a higher interest rate than a secured loan, but the rate will still be much better than that of a credit card.
The best option for you will depend on your credit rating and debt situation. If you have collateral and are confident that you can repay, a secured loan might be a good option because you will have a better interest rate. If you have no collateral or you don’t trust your discipline, an unsecured loan is probably the way to go.