What Is A Secured Debt Consolidation Loan?
A secured debt consolidation loan is where the person receiving the money pledges an asset like a car or property as security to the lender. Therefore, If you own a home, vehicle or other property, you have the option of taking out a secured loan against it.
Lenders often claim that this is the best way to eliminate your debts and that it is the best choice to maintain your credit score. While this sounds attractive, in reality, it is one of the worst decisions a person can make.
Here are some things to consider:
- This type of loan adds additional fees which just increases the amount owed to the lender;
- You are taking on an added risk of losing your home if you default on payments. Because you have used the asset as a guarantee to repay the loan, the lender has the right to repossess it if you do not pay the loan back;
- The interest rate offered may be considerably lower than the interest rate on credit cards, personal loans or payday loans you are consolidating, but you may end up paying your debt off over a longer period of time which increases the amount being paid back as well;
- Statistics show that 70 percent of Americans who take out a home equity or other type of loan to pay off credit cards end up with the same (if not higher) debt load within two years. The situation may get worse. You may become be so strapped financially that your only option may be bankruptcy which would mean potentially losing your home, vehicles and other secured assets.
A caller had approximately $20,000 and she was considering the CuraDebt debt relief program. Overnight she decided to check with her bank and see if they would help her since she had a property with some equity.
She called them in the morning and they offered her help with a secured consolidation loan (as a 2nd line of equity on her home). They offered her 5-year term for 25k. The increase in her debt would be from closing costs for loan origination fees. The risk would be that if she had a financial challenge and could not repay the loan, she risked foreclosure on her home.
She decided to go with the CuraDebt debt relief program for money savings, lower payment, home protection, and overall more flexibility.
The best solution, she decided, was to leave the debts where they were (on the individual credit cards) and get help (instead of getting a secured debt consolidation loan against her property).