Managing your debt can take a toll on your finances and life, and drain you emotionally. Whether it is a recurring medical expense, credit card debt, mortgage payments, or education loans, your monetary obligations can affect you and your family. This is where debt consolidation comes into play. Such a loan combines all your existing debts and balances them into one monthly payment. The benefit is reducing the number of loans and rate of interest on your current loans. These loans are secured or unsecured. When it comes to a secured loan, they signify broader obligations such as car loans and mortgages. A secured consolidated loan carries a lower rate of interest compared to an unsecured loan. An unsecured loan is frequently tied to your property, but sometimes with your life insurance policy, retirement account, or other personal possession.
According to an article published on https://www.huffingtonpost.in, Americans are better managing debt by saving more money. Therefore, no matter what loan you opt for, always reduce unnecessary expenses and put aside more money for future emergencies. The Huffington Post article also states that based on the findings of Bankrate.com, it was revealed that 31 percent of US citizens have savings of about six months, which is the highest in seven years. It is a good sign and shows that American customers are smartly managing their debts and sticking to a budget. However, before taking debt consolidation loans, here is what you should know:
Financial Institutions offering Consolidation Loans
Banks: When it comes to traditional banks, they offer secured and unsecured debt consolidation loans to individuals with a healthy credit history. The rates may vary depending on customers’ credit score and existing rates. The usual rates are 8 percent to 10 percent above the prime rate for people with the minimum acceptable credit score. If you take a bank loan, you will need to repay the amount borrowed within two months. The amount may vary from $25,000 or a lesser amount. The more generous banks may lend you $100,000 or more. You may get larger loans provided you have an outstanding credit score.
Credit Unions: They also offer consolidation loans with a loan term of 12 or 60 months. The members get the loan at discounted or flat rates. A debt consolidation loan from specific unions offers a flat 6.99 percent annual percentage rate (APR) for prime borrowers. The borrowing limit may vary from less than $25,000 or $100,000 or even more.
Professional Lenders: You will find many professional loan providers that do not work like conventional banks or credit unions. These finance companies do not ask for deposits like traditional institutions. The professional lenders will pay off all your creditors, and later raise a monthly bill for the amount paid. When it comes to these specialized agencies, their credit history requirements are relaxed than conventional banks. You may take a loan of $25,000 or $35,000 from the finance companies. However, the rates may be high for people with an average credit score. When you decide to take a consolidated loan from these lenders, make sure that you read their debt settlement reviews. If the customer testimonials are positive, you can go ahead. Else, look for some other company.
Why a Debt Consolidation Is Best for You
Did you know that both secured and unsecured consolidated loans come with some special benefits? Reducing the rates of interest based on your old debts, simplifying your payment schedule monthly, and helping improve your credit when you make timely payments. When you take a consolidated loan, it will not automatically hurt your credit. However, when you cancel all your credit cards after taking a loan to pay off your dues, it can reduce up to 50 points for each card, based on your previous credit history.
Benefits of Unsecured Loans
When it comes to unsecured debt consolidation loans, you do not require any collateral, i.e., putting up your assets so that you do not lose your home or any other physical property if you fail to repay the borrowed amount.
Benefits of Secured Debt Consolidation Loans
Since the lending company can repossess your assets if you cannot repay, you can take the loan even if you do not have an excellent credit score. Some of the lenders will ask for a score of just 500. Then, the money you become qualified to borrow depends on the value of your assets attached.
Reduced Rates of Interest
Though the actual rate will depend on your credit score, location, amount you borrow, a secured loan is comparatively cheaper than an unsecured debt consolidation loan. APRon some $30,000 home equity line varies from 3.5 percent to 6 percent for customers with an average score of 700.
More Borrowing Amount
If the value of your collateral is more, then you can ask for a bigger loan. However, you need an outstanding credit score for unsecured loans worth of $30,000 or more. You can take above 80 percent of your property’s equity if you opt for a secured loan.
Better Payment Terms
A few secured loans come with relaxed repayment terms. For example, home equity lines of credit let balances to linger for the due amount for some 25 years. It can minimize your monthly obligations further and increase the possibility to clear your bills.
Now that you know about debt consolidation loans, you can pay your medical bills, credit card bills carrying high interest, as well as other financial obligations. Make sure you combine your debts into a single account and with a reduced rate of interest. If you know how to use your debt consolidation loan sensibly, it can help you minimize the total cost of what you have borrowed and build a sustainable budget. If you take a secured loan, make sure you repay on time. Else, your property would be repossessed. Therefore, understand your financial standing and the value of your assets. When you take a consolidated loan, research about the lenders and pick the best one with better payment terms. Make an informed decision at the end of the day.