Unsecured Versus Secured Consolidation
Posted by fybmanager20 at December 28th, 2010
It is not a simple process to get oneself out of debt. However, several options exist that allow individuals to reduce or even eliminate their debts. Before a person files for bankruptcy, which is rather damaging and can be more problematic than debt, other debt relief alternatives should be considered. As an example, the filing for either an unsecured or secured loan is a method by which a person may eliminate their debt.
There are several ways to reduce debt. Some individuals wish to avoid obtaining a loan when eliminating debt. In either case, it is not easy to reduce the debts and doing so can take extended periods of time. Due to high finance costs, it is possible that paying double the usual amount of monthly dues may not cause a reduction in costs. Regardless, these debt consolidation loans typically have lower rates and, therefore, lower finance fees than what a consumer would pay on their credit cards.
Unsecured Debt Consolidation Loans
These loans are given by financial institutions, such as banks and do not have property security. That is, there is no collateral attached. It is not simple to get approved for these loans as, if the individual has too much debt, lenders will not wish to approve the loan. However, if your credit score is high and you have a fairly high salary, it might certainly be possible to obtain an unsecured loan.
One of the biggest disadvantages of unsecured loans is that they typically have higher rates than secured ones. Since lenders are taking a risk when they provide a loan, individuals should be prepared to pay higher interest rates. Regardless, the rates are still much lower than the average rates of credit cards.
Secured Debt Consolidation Loans
A secured debt consolidation loan consists of collateral. In order to obtain a secured loan, the borrower will offer up a valuable piece of their property as collateral. Sufficient collateral may consist of a boat title or vehicle title. If the individual owns a home, they should consider obtaining a line of credit or a home equity loan in order to consolidate the debts. These types of loans typically do not necessitate a good credit rating although higher credit will mean that the individual will be offered a better rate. Obviously defaulting should be avoided when secured loans are possessed as this will lead to a complete property possession by the lender.