Debt Consolidation: Take Out One Big Loan to Pay Off All Smaller Loans
Although using your credit card to pay for your groceries and taking out a mortgage is financially convenient, doing so can slowly bury you in debt if you don’t manage it properly. If your debts pile up and you become unable to pay, however, there are a number of debt relief options you can use.
One of the most appealing of these is debt consolidation. This option involves taking out a huge loan to pay off a number of smaller loans. While it seems pointless considering that you only replaced your existing debt with a larger one, it is actually meant to reduce your monthly payment. Compared to multiple loans with multiple interests, which sometimes vary in rate depending on the terms, a single loan may come with a much lower rate. That’s where you experience debt relief.
Loans are classified as secured and unsecured. Secured loans are loans that are protected by collateral, while unsecured loans are loans issued and supported by the borrower’s creditworthiness. Debt consolidation may work differently through these two debt classifications. For instance, a secured loan is ideal if the sum of your loans is huge enough to make it hard to find unsecured alternative. An unsecured loan, on the other hand, can be hard to find if your credit score falls below the creditor’s required range.
Debt consolidation through a secured loan can be more beneficial considering that most creditors require low monthly interest. With such terms, you can significantly reduce your monthly payment. Depending on your provincial tax laws, this loan may also come with certain tax deductibles. The only disadvantage is that the asset you will present as collateral will be at risk, but overall, a secured loan is easy to take out because of that collateral.
Before deciding to take out either a secured or an unsecured loan to cover your current smaller loans, consider getting the advice of a debt consultant like Blair Greenwood of 4 Pillars Consulting in Victoria, BC. Letting an expert know and analyze your situation is a smart move to ensure that debt consolidation will really work for you. If your consultant finds this option suitable, he can even recommend the best debt consolidation services available.
At the end of the day, though, it is still you who will decide whether to get debt consolidation or not. Think about your ability to pay. If you failed to pay your current loans, are you sure you will find ways to cover your new loan? Take immediate action once you have your answer.
Debt Consolidation: Pros and Cons, nolo.com
What Are Secured Loans?, wisegeek.com
Unsecured Loan, investopedia.com