Debt consolidation loan: A prudent option to clear multiple debts
If your multiple debts are giving you sleepless nights, you can resort to debt consolidation in order to obtain debt help. Debt consolidation is the process by which your multiple debts are consolidated into a single payment. This will lower your monthly payments which in turn can help you to manage your debt much easily. For consolidating your debt, you can take out a debt consolidation loan. Taking out a debt consolidation loan can be a very good plan to obtain debt relief. Read along to know more about debt consolidation loans.
Describing debt consolidation loans
A debt consolidation loan can be taken out to pay off all your unsecured debts. Once you clear your multiple unsecured debts, you would have to make payments for the debt consolidation loan only. The interest for a single loan will be much lower than the combined interest rates of multiple debts. It would become much easier for you manage your debt as you’d have to manage a single loan only. Moreover, the lower monthly payment of a single loan will help you to stay current on your payments. By making proper payments, you can eventually clear your debts. You can also avoid additional costs like late fees by staying current on your payments.
Types of debt consolidation loan
Debt consolidation loans can be of 2 types. Given below is a description of the 2 types of debt consolidation loans:
1.) Secured debt consolidation loan – For clearing your multiple debts, it is often necessary to take out a loan with a big amount. Due to this, debt consolidation loans often come in the form of secured loans like a home equity loans. A home equity loan is granted by a financial institution by keeping the equity of your home as collateral. If you’ve enough equity in your house, you can take out a home equity loan to consolidate your multiple debts. However, a home equity loan can be quite risky. You can lose your house in a foreclosure, if you’re unable to make payments for the home equity loan. Nevertheless, a home equity can provide you the much needed debt help.
2.) Unsecured debt consolidation loan – Debt consolidation loans are not always secured loans. They can be available as unsecured loans such as personal loans. There is low risk involved in taking out a personal loan as no collateral is needed. However, the loan amount will be much lesser than a home equity loan.
In order to achieve debt help, taking out a debt consolidation loan can be a prudent move from your end. However, in case of both secured and unsecured debt consolidation loans, your credit score can play a crucial role. A bad credit score can mitigate your chances for getting approved for a home equity loan. At the same time, while providing a personal loan, lenders often charge a high rate of interest if the borrower’s credit score is poor.