Having debt may be becoming all the more commonplace in this modern world but that doesn’t mean that it is pleasant to have to cope with. If you are starting to find that your debt is becoming too much to cope with, then you might want to find ways to help. One of the most common place methods is debt consolidation.
What is debt consolidation?
The idea behind debt consolidation is to combine a number of different debts into one. This means that rather than having a number of different loans, credit cards or hire purchases that you need to balance, you only need to make one repayment at a time. Not only will this often mean lower interest, but it may also mean that your monthly repayments are easier to track and lower too.
Unsecured or secured?
The two main choices when it comes to debt consolidation is unsecured and secured. An unsecured loan is often found to have much cheaper rates than those loans and credit cards that you currently have. As you are transferring these balances to a lower interest, more of your repayments will be going towards the whole amount being paid off, which means that it will take less time for you to pay off the debt.
A secured loan is one that is secured against your home. In the most part, these types of loan have a lower interest rate than those that are unsecured. This is because, to the lender, they are taking less of a risk on lending you the money, as your house would be the collateral if anything went wrong.
Unsecured loans are taken for a shorter amount of time (usually around 5-7 years) and they are often for smaller amounts. If you need to borrow a larger sum, or want to pay it off over a longer period of time, then you may need to take out a secured loan.
When can debt consolidation be useful?
The main reason why someone may decide to apply for a debt consolidation loan is because they are finding that it is problematic making repayments on all the different borrowings that you have. This is particularly true for those people who are finding that they need to budget, which can sometimes mean that one of their loan or credit cards repayments are missed. This means that you need to pay late fees as well as being charged higher and higher interest.
Taking out a debt consolidation loan is also known to improve your credit rating. Not only does it reduce the amount of borrowing that you have, but with every payment that you make, you are showing lenders that you are responsible with the borrowing that you have.
It is important to remember, however, that the longer that you take to pay off any debt that you have, then the more that you are likely to pay off in the end. Another important thing to think about, is that if you take out a secured loan, then your home will be at risk if you do not make the repayments.