Consumers looking for an option to consolidate debt may be able to use secured personal loans, as this option has been one of the methods that has helped consumers handle their debt and find more affordability in their monthly debt payments, but there are both upsides and drawbacks to secured personal loans that have been used to consolidate personal consumer debt. Typically, consumers who are in a bad credit position and are struggling under the weight of multiple repayment obligations will turn to secured loans as they can be a more affordable and, particularly for someone who may have a low credit score and might not qualify for a traditional debt consolidation loan or may have to settle for a consolidation plan at a high rate of interest.
In the past months, there have been homeowners who, in certain conditions, have used their mortgage as a way to get a secured loan to consolidate debt. Some homeowners may have used a home equity line of credit while others simply chose to use a refinancing option that allowed them to take cash out of their home. While some homeowners have used cash-out refinancing since it essentially allows them to consolidate debts onto their mortgage, as this usually means they are dealing with these debts attached to a lower interest rate, and homeowners who may have problems repaying debts may not be in a position to benefit from a home equity loan. However, this particular form of a secured debt consolidation will, obviously, not be available to borrowers in a bad credit position as, when it comes to refinancing, homeowners who have used a cash-out option also refinanced to a lower mortgage interest rate which can help lower costs as well.
However, despite the fact that a secured personal loan has benefited consumers when it comes to consolidating debt, one of the problems that consumers face is the fact that they do have to put up collateral, which could be problematic if they are unable to erase their secured personal loan debt. While there are arguments that say consumers who can use collateral to acquire a secured loan to consolidate their debt will most likely find more affordability in terms of the monthly payments they must meet on these debts, there is still the risk that consumers could lose their collateral and the overall costs associated with any type of consolidation loan could be more expensive than had a consumer kept their debts separate.
For this reason, consumers must weigh their options in relation to how their personal financial situation will affect their ability to acquire a secured loan, the rate that may be associated with this consolidation option, and the overall costs they must pay. For bad credit borrowers though, many are unconcerned about overall costs as they are simply looking for a way to lower their monthly payment amounts on various debts through consolidating, and may be willing to pay additional costs so that they can avoid doing further damage to their credit score.
Yet, advisors still feel that considering the overall costs one must pay should be one of the primary concerns a consumer factors into their decision when researching secured personal loan options as, again, consolidating debt to avoid missed payments is helpful, but consumers should also strive to get out of debt at as low of a cost as possible. Some individuals have been able to acquire a secured personal loan and have made more than the minimum monthly payment requirement, which may still be more affordable than their debt repayment obligations, and this has helped some lower the overall cost associated with interest as well.
However, secured personal loans used for debt consolidation must be carefully considered as, again, collateral is required, any type of consolidation could cause increases in debt repayment costs, and consumers may have options like credit counseling that could help them avoid options like consolidating debt or even turning to alternative forms of debt relief like a debt management plan.