Being strained by a loan with a steep interest rate, it may come natural to you to consider researching lenders to find a debt relief loan. The resulting debt consolidation might lower your monthly payments, extending your loan term, or reduce your interest rate. But, in the end, if you are perilously in debt, you are only trading off one liability for another.
There are various benefits in applying for debt relief loans, such as consolidating all your bills into a single payment that you send to the bank every month. But, your debt burden isn’t being eliminated. Instead, it you are reducing some stresses.
In case youare considering consolidating your debt, there are the two types of debt relief loans to consider – a secured debt relief loan and an unsecured debt relief loan.
Secured Debt Relief Loan
By issuing to you a secured debt relief loan, the lender is protected by a form of collateral or asset. The loan instrument includes an item that you secure in getting the loan, e.g. a car or a property that you own. You do not need to have the collateral totally paid off to secure the loan. However, if you miss a payment on the loan, a lien could be placed by the lender against your collateral.
A lien will allow your property to be sold by the lender in case you fail to repay your loan on the agreed upon terms. The title to your property passes on to the lending company and stays with them till you settle your debts in full. You may be eligible for larger loan amounts as compared with any unsecured loan, since you’re using actual assets to secure your debts.
Unsecured Debt Relief Loan
Compared to a secured debt relief loan, in you default on an unsecured debt relief loan, the lender doesn’t have any collateral to collect. That is why such loans a hard to achieve for people that have a lot of debt or bad credit. In this instance, more risk is taken by the lender, who takes a closer look at your employment and credit history. They will most likely check out your statistical likelihood of repaying your loan in time. You don’t pose a high risk if you stay current on your payments and are stable with your employment.
It is also possible to come across lenders offering you unsecured loans although you have had a rocky employment or credit history. However, these creditors are likely to offer you much higher interest rates.
In case your debt has spiralled out of control, it would be really difficult for you to achieve a lower interest rate with an unsecured debt relief loan. Additionally, you’d still have to pay the principal loan amount for the entire duration of your loan.
Bad Credit Debt Consolidation Loans – Know More
There are many types of loans available to consumers including personal, car, mortgage and less desirable, but sometimes necessary, bad credit debt consolidation loans.
Debt consolidation is something that is done to combine several different debts into one single payment. The most common debt type that gets consolidated is credit card debt which accumulates with many different companies. Secured debts, such as auto or mortgage loans, are not typically consolidated, but medical debts may be combined with credit cards in the consolidation process.
Its primary purpose is to fix the issue of financial instability and learn new skills about how to maintain finances in the future to prevent the issue from coming back up down the road. Carrying out the process requires consulting professionals who have skills and a background in financial services. They analyze your current financial situation such as your income, expenses and debts and then determine the quickest way to pay the debts off without causing too much financial stress.
When you do decide to get a loan to consolidate your debts, you need to select a lender to apply to and then fill out an application.
In most cases when you get a loan of this type your credit is either on the verge of, or already is, in bad shape and therefore you is not qualified to get a more traditional type of loan. The process involves contacting your various creditors to attempt to work out a settlement payment. The loan is used, in full, to pay off the amounts of debt. Many times companies are more willing to negotiate if you pay a large lump sum instead of smaller monthly amounts. You can save yourself thousands of dollars by consolidating.
It’s much more convenient to pay only one company each month and also stops the collections calls from ringing on your phone multiple times a day. Everyone benefits from the consolidation both financially and even in other ways too, such as having reduced stress and frustration.
It is important to take individual factors into consideration when you decide to consolidate your debts. While getting a loan will give you one lower monthly payment, if the payment is too high for your income when combined with other expenses it will not be beneficial and re-create a bad cycle of poor money management and debt.
It’s essential to get the process going as soon as possible. The longer that you wait to get the debt under control, the longer it’s going to take to sort out. The interest charges will continue to build up and the debt isn’t going to just disappear.
- Do’s and Don’ts with Debt Consolidation Loans – When you are saddled down by mounting credit card debt, it is a frustrating situation. If you have spent with plastic beyond your means, it may be difficult or even impossible to pay back what you owe to your creditors. It negatively impacts your credit score, credit reputation and causes your creditors to spike your interest rates. Fortunately, there are options available to you that can help improve your situation so that you can pay off your debt.
- Choose a Reputable Debt Consolidation Company: If you are considering a debt consolidation loan or debt consolidation in general, you should know all of the do’s and don’ts that are tied to it. Essentially, the first thing you should know is that you should research several debt consolidation companies. This is especially important, as you should only choose to work with one that is reputable and accredited. Once you have selected one company, you will be paired with a professional credit counsellor who will give you plenty of advice about obtaining a debt consolidation loan.
- Choose the Right Term Debt Consolidation Loan: You should also know that if you get a debt consolidation loan, you have options regarding the repayment term after you have used it to pay your creditors. Generally, the longer the repayment term of the loan, the lower your monthly payments will be. At the same time, you may run into an issue of accruing more interest. Another option is to mortgage your home toward the loan, which can provide you with a lower annual percentage rate. Weigh out your options so that you can know which is best for you.
- Stop Using Your Credit Cards: Do not continue using your credit cards if you are struggling with debt. This is one of the worst mistakes a consumer can make when they owe their creditors, as it will merely drag them even farther into debt. Cut your credit cards, put them away or have a family member or friend hide them so that you cannot get to them.
- Contact Your Creditors: Explain your financial situation and that you are in the process of trying to pay back the debt you owe to them. Try to compromise with them to get them to agree to lower the interest rates attached to the amount you owe. This can significantly lower the amount you owe, which can make it far easier to pay it back.
Conclusion
Debt consolidation loans can be a powerful tool for managing and simplifying your finances, but they require careful consideration and responsible handling. With the right approach and mindset, debt consolidation can be a stepping stone towards achieving a more secure and debt-free future.