According to Nasdaq, non-mortgage debt in America has shot up by over 50% in the last decade. This increase indicates that consumer debts like credit cards have become increasingly entrenched in most Americans’ lives. However, sometimes, paying debt becomes an uphill task that requires a way out. The good news is, that debt consolidation has proved to be an ideal approach to alleviating debt burdens.
Debt consolidation is a strategic loan approach that helps individuals manage multiple debts effectively. It combines numerous debts into one big loan that offers more favorable payoff terms, such as lower monthly payments and interest rates. Here is a brief overview of debt consolidation and why debt solution specialists boast it as a solution to financial freedom.
Types of Debt Consolidation Loans
There are two types of debt consolidation loans: secured and unsecured loans. Secured loans require an asset backing, such as a home or car, to act as collateral for the loan. On the other hand, unsecured loans don’t require collateral.
Unsecured loans are relatively harder to get. They also come with lower qualifying amounts and higher interest rates. However, either type still has lower rates than credit card charges. The rates are typically fixed and remain that way throughout the repayment period.
Ways of Debt Consolidation
Ideally, you can consolidate debt through various types of loans. However, the best loan type for your specific case depends on the type and terms of your current loan and financial situation. Here is an overview of the ways to consolidate debt.
- Balance transfer credit cards: This approach allows you to transfer high-interest balances onto one card with lower interest rates. Typically, a new credit card offers lower rates, which makes it ideal. Symple Lending recommends using this approach for the majority of credit card debts.
- Personal loans: This loan type is unsecured and often granted by banks and credit unions. Secured personal loans have lower rates, which makes them ideal when considering debt consolidation.
- Home equity loans are a perfect debt consolidation option for homeowners who have built home equity. These secured loans use your home equity as collateral and offer interest rates lower than credit cards.
- Student loan: Various consolidation options exist for individuals with student loans. One of the ways is through the Federal Direct Loan Program, which grants an average interest rate on all previous loans. While this option might help you alleviate your debt burden, you may pay more due to the extended repayment period.
Risks of Debt Consolidation
While debt consolidation is an excellent solution for managing multiple debts and alleviating the debt burden, it also has its fair share of risks. For instance, your credit score may take a minor hit because taking out a new loan affects your qualification for other loans. However, if you can pay off sooner, you will reduce your credit utilization ratio, improving your credit score in the long run.
Furthermore, depending on your consolidation approach, you could pay more interest. For example, you could take out a debt consolidation loan with lower monthly payments but a prolonged repayment term. This approach will make you pay more in interest in the long run. Additionally, you can only lose your collateral if you make your payments. Due to these risks, you should seek debt solution specialists to help better evaluate your options.
Are you caught up in bad debts? Don’t fret; Symple Lending is ready to rescue you. Call us today, and we will help you walk out in a breeze!
