As we continue our advice about debt consolidation loans, today’s tip is to be careful not to turn unsecured debt into secured debt, unless that’s what you intended to do.
An unsecured debt is not attached to an asset; a secured debt is. Common examples of secured debt would be a mortgage (attached to your house) or a car loan (attached to your car). The most common example of an unsecured debt would be a credit card.
It is common to get a secured debt consolidation loan, such as a mortgage debt consolidation loan, because the interest rate on a secured loan is generally less than the interest rate on an unsecured credit card. The bank offers you a better interest rate on a secured loan because they know that if you don’t pay, they can seize the security (your house or car) to repay the loan.
But that’s the problem. By converting your unsecured debt into secured debt you run the risk of losing your house or car if you are unable to pay your loan.
Getting a secured debt consolidation loan may make sense. If you have equity in your home, it may be wise to convert 19% interest credit card debt into a loan at 6% mortgage interest rates. The lower interest rate will help you get out of debt faster. However, you must be sure you can repay the loan, because if you don’t you could lose your house or car.
If you are unsure of whether or not a debt consolidation loan can help you deal with your financial problems the best approach is to talk to a professional about your situation. For a free debt evaluation, contact an expert today.