Secured Debt Consolidation - Is it For You?

Secured debt consolidation is one option for consolidating your unsecured debt.   However, secured debt consolidation is not for everyone as there is a lot more to lose going this route than having an unsecured debt consolidation.  Advantages of a secured debt consolidation loan are that these are typically easier to get as you will have to use collateral to obtain this loan.  Also, it will be easier to manage your finances knowing that all your debt is managed and controlled by one lender.  Moreover, if you have high credit card debt and the interest rates are out of control, consolidating your debt into a home equity loan (secured loan) will reduce the high interest payments, fee, and penalties that you are paying on your credit cards and will move your bad credit card debt into a more manageable system. If you know that your financial is becoming bleak, consolidating debt could possibly save you from damaging your credit report.  Many people do not realize the effects of having a bad history credit report.    The key point is that you must take control of your financial situation before it starts spiraling out of control.
 
 What exactly is secured debt?  Secured debt is when the money your borrower is backed or “secured” with collateral.  Collateral is a form of an asset of monetary value.  It can come in the form of a cash security deposit, a piece of property (house or real estate), and a car (it it’s an auto loan).  Usually secure loans are backed by equity in ones house.  The more equity you have in your house, the higher amount you will possibly receive on your loan.  The reason why your loan is “secure” is because the lender can put a lien on your house if you do not go through with your loan payments.  This means they can collect on the loan by taking the collateral that you put down.  To put it gently, they can take your house and you can end up homeless!  This is the reason why you will be able to get a loan easier with a secured debt consolidation, instead of an unsecured debt consolidation.  With unsecured debt consolidation, you do not have to back up your loan without any assets, however, the interest rate on this type of loan will be higher and it will be harder for you to obtain this kind of loan. 
Also, with unsecured direct loans, you will not be able to borrow as much as you would with a secured loan.  Besides the scenario of losing your home, there are other disadvantages to secured debt consolidation.  Since your equity will be tied up with the loan, when you decide to buy your house, you will not have equity to transfer to your next home purchase.  The terms of secured home equity loans usually last for around fifteen to twenty years, and the interest rates on these loans tend to be lower.  Because of the long duration, your monthly payment will tend to be lower; however, you will also end up paying a lot more in interest as the duration of the loan is loan.  If you do not see your financial situation becoming any better in the long-term, then going this route is not for you.  The reason why you are consolidating your debt is because you are preparing to control your credit.  If you keep adding onto your credit woes by opening up new credit accounts, then you’re going to be in a world of financial pain.  People with poor spending habits and a lack of knowledge of budgets should not consolidate debt.