A Debt Consolidation Loan can be an effective way to pay off high interest credit card debt and provide debt relief through lower interest rates. For the millions of Americans who struggle with high debt levels, this can offer a solution where the creditor gets paid in full and you are able to reduce the monthly expenses. Some debt consolidation loans require a form of security which means you must have equity in your home and transfer the debt to a home equity loan. This can result in a longer payoff period. It also results in moving unsecured debt to a secured debt which has its own set of risks.
USING SECURED DEBT IN PLACE OF UNSECURED DEBT?
Unsecured debt has a higher interest rate because it comes with more risk for the lender. If you fail to make payments it may be difficult for the lender to collect payments. When a loan is secured by your home or other form of collateral, the interest rate can be reduced significantly because the bank risk is reduced. If you fail to pay a loan secured by your home, the bank can foreclose and take your home to pay off the debt.
While this reduces the bank’s risk, and they allow you to use the loan funds to pay off credit card debt, your risk increases. Now if you are unable to make payments you could lose your home. These loans generally take 30 to 60 days to close and require qualifying with a good credit score, equity in your home, and verifiable income.
Speak to a Finance Solutions credit counselor today to learn more about Debt Consolidation Loans.