Debt Consolidation Loans
Looking at debt consolidation loans as a way to consolidate debt and lower payments, is where most people will start. There are different types of debt consolidation loans though, so you’ll want to see what you can qualify for and if it is the right way to get debt relief. Getting any consolidation loan will be a challenge out the gate for those with bad credit. Getting a signature loan would be almost impossible or even trying to secure an equity line of credit will still need decent credit.
Debt Consolidation Loan Types
These break down into two categories, secured and unsecured. An unsecured loan or signature loan, is an installment loan granted by a lender without any collateral. The loan is approved based on credit history and ability to pay, similar to a credit card account. You are funded the money even without being required to use it for other bills after all. Interest rates for these generally run 7-12%. This allows the consolidation of high credit card debt into one lower monthly payment with lower interest. Sounds good, but most people who need relief with their monthly payments have credit issues and in turn, cannot qualify for one of these.
Secured debt consolidation loans require collateral. In most cases, these are simply home equity lines of credit people will take against their property. Those with equity in their home can use this option to pull cash out for many things, as well as, bill consolidation. One still needs to qualify though, and it’s a process that will still require no flagrant credit issues. If you wanted to consolidate secure loans as well like a car payment, then this makes much more sense for the reasoning below.
Never Convert Unsecured Debt to Secured Debt
A big issue most would agree on when consolidating unsecured debts such as credit card bills, payday loans, or medical bills is the decision to use a home equity line of credit to do so. Why? Simple, before a HELOC you have a set of bills that only have your signature as your guaranty to pay. Is it really wise to roll those debts into your biggest asset? What happens if your can’t pay back your equity line for some reason? You just attached your house to your debt when it wasn’t before. This could turn out to be a terrible error.
Use a Debt Management Plan
As a Debt Management Agency, BSI administers debt management programs for consumers. Using a Debt Management Plan to consolidate medical, payday loans and credit card debt in many cases makes much more sense. Interest rates average around 10%, you don’t need good credit to quality, and your loans stay unsecured, protecting your assets. Soon to follow,we comparing in detail the pros and cons of debt management plans vs debt consolidation loans.