Debt Consolidation and Credit Card Counseling

A secured loan is a good start towards consolidating your debt

If you are like a lot of Americans, you probably owe too much money on your credit cards. It’s easy to do; spending with a credit card is so simple that it takes almost no effort. When the bill comes, you sometimes don’t have enough to pay it in full, so you send in a check for just a portion of it. In time, your balance can grow, and soon, you find that you owe an uncomfortable amount of money.

If this happens with multiple accounts, you can find yourself owing more money each month than you can afford to pay, even if you only pay the minimum required amount. What can you do about that? One solution is debt consolidation, where you take out a new loan in an amount that is equal to the total of all of your debts. You use that money to repay all of your bills and you are left with just one affordable monthly payment. How can you do this?

The easiest way to consolidate your debt is by using a secured loan. A secured loan is one where you offer collateral to the lender in exchange for the loan. If you fail to pay, the lender may take the collateral as payment. Secured loans are ideal for consumers who have a poor credit history or who simply don’t have a long track record of borrowing. Offering collateral gives the lender some degree of assurance that you will repay the loan.

The most common types of collateral offered for such loans are either homes or automobiles. They are preferred by lenders, as it is easier to determine a value for them and they are easy to sell should it be necessary to do so. By offering collateral for a loan, you should be able to receive a more favorable interest rate than you would for an unsecured loan. Credit cards, for example, represent unsecured borrowing, and interest rates for credit cards are often in the range of 20% annually. By pledging your home as collateral for a bank or credit union loan, you should be able to borrow at substantially lower interest rates.

By taking out a secured loan, you should be able to lower your payments. The two factors that contribute to lower payments are a reduced interest rate and a longer period of repayment. A typical home equity loan, which would use your house as collateral, might have a repayment term of 10-15 years. This, combined with the lower interest rates that come with equity loans, should make your payments more affordable. Keep in mind that you are putting your personal property on the line with a secured loan. If you fail to pay, you will lose your property to your lender.

If you find yourself in a tight spot regarding your bills and how you should pay them, you might wish to consider borrowing from the bank. If you have suitable collateral, it might be easier than you think.

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