Is an unsecured debt consolidation loan the best way to handle your current debt situation? The burden of multiple balances and never-ending credit card payments can be a challenge to manage. For some people, the best solution is to consolidate all of the loans and credit cards into one consolidation loan.
But not all consolidation loans are created equal. It’s important that you evaluate your options before committing to a personal loan for debt consolidation. Here are a few things you need to consider:
Secured vs. Unsecured Consolidation Loan
All loans fall into one of these categories:
- Secured Loan: This type of loan requires that you offer some sort of collateral to receive the money. Examples of collateral include a car, real estate, a boat, stocks, or any other asset of value. The lender holds the title for the asset until you have paid the loan in full. Since the loan is backed by an asset, the loan terms are usually more favorable compared to an unsecured loan.
- Unsecured Loan: If you receive an unsecured debt consolidation loan, then it means that the lender is not requiring an asset for collateral. As a result, the interest rates tend to be higher since the lender is taking more of a risk. The lender determines if you are a safe risk based on your credit score, current debt, income, and other personal factors. Other examples of unsecured loans include credit cards, student loans, or personal loans.
Why Unsecured Loans are Preferred for Debt Consolidation
Most people who need an unsecured debt consolidation loan don’t have much to offer when it comes to collateral. When a borrower is leveraged with multiple loan balances, then they might not have an asset of value that compares to the size of the loan.
Just because you don’t have collateral for a secured loan doesn’t mean that you don’t have options for debt consolidation. It is common for borrowers to access this type of loan as a tool to dig out of debt and achieve financial freedom once again.
What You Need to Know About Debt Consolidation
The right type of unsecured debt consolidation loan can be the answer you need to overcome your current financial situation. If you are feeling the stress of keeping up with payments and juggling multiple types of loans, then debt consolidation can simplify your financial portfolio.
Also, debt consolidation is a great way to stop debt collectors from calling. The lender pays off the balances to satisfy the outstanding balances you owe. Then, you have one simple payment to make each month. Often, the debt consolidation loan has a lower interest rate and more favorable terms, making it easier to pay off the balance over time. If you are looking for solutions for your current debt issues, then consider an unsecured debt consolidation loan to get back on the right track again.