Considering Debt Consolidation And Personal Loan For Bad Credit

By Sean A. Kelly

Credit cards as much convenience they offer, if not handled well may lead to unhealthy spending. Spending when unchecked for a while may lead to credit card debts. These debts may simply pile up with a good amount going towards interest while the principal amount still there lying untouched. In such situation you can consider debt consolidation and personal loan for bad credit. It is advisable to measure all your options before you consider debt consolidation and personal loan for bad credit as the biggest downside is that you will be consolidating unsecured debts to secured debts. If you miss any payments or over-extend yourself on the mortgage you may risk foreclosure. So in this article we will discuss how debt consolidation works and when to consider it.

Before we discuss the above let us know the difference between secured and unsecured debts. Secured debts are tied to an asset that’s considered collateral for the debt. Common examples of secured debt are a mortgage and a car loan. The debt is considered secure or guaranteed because if you do not pay, the bank or lender can take your home or car. Thus, the home or car provides collateral. Unsecured debt is debt that you guarantee only by signing a contract or loan documents promising to pay back the money. Therefore, there is no tangible item on the line as collateral. Personal loans and credit cards are the most common types of unsecured debt.

Now when we are consolidating all debts, secured and unsecured, it basically allows us to only make a single monthly payment. The debt that has accumulated from several different places and factors is now joined into one payment. This simple restructuring allows you to get a better grasp and handle on your fiscal situation. You may get much better interest rates on credit card consolidation than on the cards themselves. So you may be saving a lot of money on interest rates plus the finance charges which can in turn lower your monthly payments.

If you have a good credit history then you may be able to negotiate with the lending company on the rates and get the best rates according to your credit record. In case of bad credit debt consolidation the rates will be slightly higher than standard rates and you may have to pledge collateral. Such type of consolidation is called debt consolidation loan. Debt consolidation loan is provided through a bank or a financial institution and it can be unsecured or secured by the pledge of collateral. The biggest concern when it comes to debt consolidation loan is whether it will harm your credit or not. In normal circumstances, having debt consolidation loan will not harm your credit in any way if you make your repayment according to the schedule given by your lenders unless you fail to meet the repayments. Due to some financial difficulties if you miss payments you might risk losing your collateral.

As you are considering consolidation it is equally important for you to consult a qualified lender. There are many scam artists out there who are looking to take advantage of customers who feel desperate and vulnerable. It’s best to gather all the facts and then take a few days to evaluate your options before agreeing to anything.

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