Debt consolidation loan is a type of debt relief program wherein you will get a master loan to pay off all your other debts. The end result is a restructured payment plan that spans over 3 to 5 years. You will be allowed to make a lower monthly payment with a lower interest rate too.
There are various loan types that you can use and the most common distinction is between an unsecured and secured loan.
Secured Consolidation:
Generally, secured consolidation loans are reserved for home owners only, but sometimes other types of security could be accepted. There are two specific advantages of a secured consolidation loan across an unsecured loan.
- The interest rates are generally better than unsecured loans, which results in a quicker repayment term or even reduced monthly payments.
- Bad credit is generally not much of an issue in getting approved, because you are securing your debt with collateral.
The possible down-side with a secured consolidation loan comes when you do not pay your newly lowered monthly payments. The collateral you’ve extended may be a target if you do not hold your side of the bargain. On the other hand, this won’t be a problem if you are making the payments on schedule and will be serious about clearing your debts.
Unsecured Consolidation:
When you do not own a collateral, your option is to go for an unsecured loan. Since you lack the security of a collateral, the lender will look at other means to determine your creditworthiness. More often than not, this means you need a good credit score. Having a high credit score means you are a responsible credit holder. You pay your dues on time, you have a low balance to credit limit ratio and your overall debt amount is not significant that you cannot meet your payments. These are only a few of the things that lenders want out of a borrower. If you have these qualities and it is proven by your credit report, then they will perceive you as a low risk borrower. The end result is a low interest rate on your unsecured loan.
The key to make debt consolidation loan a viable debt relief option is when you can get a single low interest loan that will replace your multiple high interest debts. Your requirements will determine whether you qualify for a secured or unsecured loan. Both of them will give you the lower and single monthly payment that is the goal of debt consolidation loan.
In case you do not have either a home or a good credit score, there are other debt relief programs that you can use. Debt settlement is an additional feasible choice that accomplishes fundamentally the same end, but generally does not call for any security.
Whether you are searching for debt consolidation or settlement alternatives, the most common goal is lowering your monthly payments. The best option is to speak to a couple of reputable debt specialists to look at which options are available. Once you understand what you can qualify for, you can then compare costs and make your ultimate choice.
You may consider comparing online debt consolidation and settlement choices to discover what options are available to you.