Most of us know how stressful it can be to have to juggle a range of debts, as this means a range of monthly repayments to a variety of creditors, which can get confusing and frustrating. Having so many creditor and debts to deal with comes with a range of problems.
Firstly, you end up paying high levels of interest to many different creditors, especially if you have debts such as credit cards and store cards, which usually have very high interest rates.
Another problem that comes with having to deal with a large number of debts is that financial management can get confusing and difficult, and this can lead to you missing repayments and making regular late repayments.
This can have a knock on effect in that it can seriously damage your credit history and rating, which can then make your financial future increasingly difficult.
Finally, you may find that having to make repayments on many high interest debts means that your monthly outgoings are sky high, which could leave you with little or no disposable income each month.
There are some solutions available to those that want to rid themselves of the hassles of high debt repayments and a whole bunch of creditors to deal with, and one of the most effective solutions is a debt consolidation loan, which is a loan that can be used to repay all of your smaller debts.
Consolidation loans are available on either a secured or an unsecured basis, but if you have a high level of debt you may find that the unsecured consolidation loan may not prove effective. This is because the borrowing power with unsecured loans is far lower than with secured loans, which means that you may not be able to borrow enough to repay all of your existing debts.
In addition to this the repayments periods are usually much shorter, which means that your monthly repayments will be higher and you may not really make much of a saving on your monthly outgoings. You will also need good credit to qualify for an unsecured consolidation loan.
For those with poor credit or those with very high levels of debt one of the most effective solutions is to opt for a secured consolidation loan. These loans are available to homeowners with a certain level of equity in their properties, and can make a real different to your debt problems.
A secured consolidation loan is secured against the equity in your home, and this means that before you make any commitment you must ensure that you can comfortably afford the repayments, as otherwise you could risk losing your home.
Also, another risk to consider is that you could fall into negative equity if house prices fall and you have borrowed against the full amount of your equity. It is therefore advisable to borrow up to a percentage of your equity giving leeway for house prices to fall without putting you into negative equity right away.
When you take out a secured consolidation loan you will have to meet the lender's eligibility criteria in terms of financial and employment status, equity levels, income and outgoings, credit rating, etc.
You will find that there are a number of lenders that offer secured loans, and it is therefore important that you compare different deals from different lenders in order to get the most competitive consolidation loan package for your needs.
Interest rates, terms, and repayments periods can vary from lender to lender, and by comparing these areas you can ensure that you get the best loan for your needs and your pocket.
Once you have found the right secured consolidation loan and have been accepted you can get all of your existing smaller debts paid off through your new loan, effectively closing all of your existing credit card, store card, loan, etc. accounts.
You will then need to start making monthly repayments on your new consolidation loan. However, if you find a low rate, good value consolidation loan you will find that the competitive interest rates and longer repayment periods could mean that your monthly repayment is far lower than on your previous debts.
Also, bear in mind that based on your equity levels you can usually enjoy far greater borrowing power with a secured consolidation loan, and this means that you can cover all of your existing smaller debts, so that there are no debts left straggling behind because you cannot borrow enough money to pay them all off. Once you have done this you will find that financial management is far easier and your debt repayment is far more affordable.
Source:http://www.thriftyscot.co.uk/money/122007/is-a-secured-loan-an-effective-way-to-consolidation-debt.html
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