Learn About Secured Debt Consolidation Before Jumping Into It
More UK consumers are finding themselves in debt and those who address the situation quickly prevent it from becoming permanent. With regular monthly bills that must be paid in addition to their debts, many consumers seek debt consolidation help.
Experts in debt management review the situation and recommend a debt consolidation management plan that often includes an unsecured or secured debt consolidation loan.
Debt consolidation loans allow consumers to use a single loan to repay all outstanding debts. This loan is then repaid through monthly payments over a predetermined time. Consumers who take a fixed interest rate loan pay the same amount each month.
Those with a variable interest rate loan make payments that vary based on base rate fluctuations.
In addition to the different interest options, consumers may be able to select from an unsecured or secured debt consolidation loan. Unsecured debt consolidation loans are backed by a written commitment to repay the financing.
If the borrower ceases to make payments, the lender must take legal action to recoup the money it is owed.
During the recent financial crisis, many lenders found themselves with a large number of defaulted loans, leading them to be very selective with future loan approvals.
Secured debt consolidation loans are backed by an asset of value. In most cases, this is the home of the borrower. Since these do not carry the same level of risk for the lender, the interest rate is lower.
This may make them more appealing to a consumer who is already saddled with a great deal of interest on current debts.
However, that lower rate comes at a very high cost: the chance of losing the home in event of a default.
Many people immediately consider these the best debt consolidation loans before fully assessing the drawback. They figure they receive a steady paycheck at work and are now living on a strict budget, so the chances of defaulting on the loan are slim to none.
They complete an application for a secured debt consolidation loan, get approval, sign the required paperwork, and begin making payments. Life is good until a short time later when they lose their job and do not have enough money saved to make the loan payments.
This example goes to show that one can never be too certain of the future. Though it may seem like an extreme case, it is becoming reality for more and more UK workers. There are people behind those rising unemployment rates and many of them were in debt before they lost their jobs.
It is very important to carefully consider secured debt consolidation before going down that road.
Some consumers do not have the luxury of being able to select between unsecured and secured debt consolidation loans. Their credit history may be marked with enough negative items to cause lenders to take unsecured borrowing off the table.
With a secured loan as their only option for debt consolidation, UK consumers with poor credit have no choice but to roll the dice and hope they do not end up homeless.
Reputable debt consolidation counseling firms will present both unsecured and secured debt consolidation options to consumers. The pros and cons of each will be explained in detail.
The counselor will use the financial status and employment situation of the borrower as basis for a recommendation regarding the best choice.
Consumers should carefully review the information they receive from their debt management counselor. They should think long and hard before pursuing secured debt consolidation.
The lure of an attractive interest rate should never overshadow the truth behind this financing- that the home could be repossessed if an unexpected situation arises.
