Why consider an Unsecured Loan for Debt Consolidation

Consolidating all of your debt, or even some of it, is a great way to reduce your number of payments every month, potentially lower your interest expenses, and lower your total monthly debt payments. Debt consolidation is an effective financial strategy for improving your personal financial situation.

In most cases debt consolidation is done using a secured loan a loan that has some form of collateral backing it. The reasons for this is that a secured loan typically has a lower interest rate than an unsecured loan, lower fees, and better terms.

There are good reasons to consider using an unsecured loan for debt consolidation as well.

In the event that you do not have an asset suitable for collateral an unsecured loan may be your only choice. Perhaps you rent and have no home to use as collateral? Or with the declining housing values your home just doesn’t have the equity any more.

If you have many high interest credit cards even an unsecured loan may provide you with a better interest rate. Moving you high interest credit cards to an unsecured loan can save you a great deal of money and allow you to pay off your debts much more quickly.

Consolidating your debts into a single payment will also give you the added convenience of having to make only one payment. It will save you the hassle of making out several payments and keeping track of several bills and due dates.

An unsecured loan also prevents you from having to put up an asset for collateral. This prevents you from having to put an asset at risk in the event that you default on your loan. You have not assigned interest in an asset to a lender and they therefore cannot dictate how you treat and use your assets.

With a secured loan your lender can insist on specific insurance coverage on your collateral and prohibit you from certain uses. In addition, with a secured loan your asset will have a lien on it, meaning that the insurance company will pay out the lender in the event of a claim. You avoid all of this with an unsecured loan.

Ultimately, using any loan to pay off a lot of credit card debt and consolidate your debts is a good step in the right direction, provided that you do not charge a significant amount again on the cards you have paid off. An unsecured loan is far preferable to credit card debt, and will save you headaches and money. Take some time to consider the advantages of consolidating your debt using an unsecured loan.