By Kari Johnson on January 11, 2011
.jpg.aspx?width=75&height=75) If you have multiple monthly bills to creditors who are piling on interest, you may have heard that you need to consolidate. While this may not be a bad idea, you need to think about your personal situation before you choose if or how you consolidate your bills. Some people may take out secured consolidation loans. Is this the option for you?
A secured consolidation loan isn’t like most loans. Instead of using your credit score as a way to determine how likely you are to pay the loan back, which may disqualify you from most loans if you are in the position, they use something valuable of yours (usually your home or a car) as collateral, insuring that you pay the loan back. The amount you receive in the loan is dependent on the value of the item you put up as collateral. The goal is to get a loan for enough money that you can pay off the debt you are in.
There are some benefits to this. For one, it will simplify your life when you are paying one creditor rather than however many you are indebted to. Because you do not need to use your credit score to qualify, you are more likely to get a secured loan than any other when in this predicament. Also due to the collateral you use to receive the loan, the interest rates are generally lower for secured loans.
To receive a secured consolidation loan, you must first decide on what you are planning on using for collateral. Think this one through. You are making a risk of losing this item if you cannot pay back the loan, so do not use anything you cannot handle losing.
After you have chosen your collateral, it is time to choose your lender. Not all lenders accept all forms of collateral. Home equity loans are fairly common, and most lenders will let you borrow against a car, or even a boat. A few lenders may let you use something smaller, like valuable jewelry or electronics, though it will take a little more work to find someone willing to use those as collateral.
Some lenders may try to take advantage of your situation and charge you higher fees or interest rates than you should really be paying. The last step in the suggested process of getting a loan like this is the best way to prevent this problem: compare loan offers before settling on one.
As always, not every method of debt consolidation will work for every person or every situation. Think through every option before deciding what plan you are going to use. |