The average person carries several credit cards and with ever-increasing interest rates, being able to pay off your balances in full each month is simply not a reality for most people. An unsecured debt consolidation loan can be a big help in streamlining your monthly debt obligations while saving you money at the same time.
Debt consolidation loans come in two types: secured and unsecured. They each have advantages and disadvantages. Unsecured debt consolidation loans are good because you don’t need collateral to qualify, but the downside is their interest rates are generally higher and they are harder to qualify for because they require a higher level of credit worthiness. Secured debt consolidation loans generally have lower interest rates, but you need collateral to qualify. Also, it is not advisable to pay off your credit card or other unsecured debt with a secured consolidation loan because, in effect, you’ll be converting unsecured debt into secured debt. If down the road things take a turn for the worse and you end up not being able to repay the loan, you may lose whatever you put up as collateral.
For most consumers, an unsecured consolidation loan is an option they should investigate when seeking help for unsecured debts. But you must be diligent and thorough in comparing your options so you can find and select the best terms available to you.
1. Get organized by noting what rates you’re currently paying on each of the debts you want to consolidate.
2. First check rates at credit unions. Credit unions generally offer lower rates than banks on unsecured loans. And always ask if there are any other fees, such as application fees or transfer fees associated with the loan.
3. Then check the rates at your bank. Since you are already a customer, they may accommodate you by offering you a lower interest rate than a bank you have no relationship with. And once again, ask if there are any other fees, such as application fees or transfer fees associated with the loan.
4. Compare the rates on your current debts to the interest rates offered by the credit unions and banks you researched. Only take out an unsecured debt consolidation loan if the interest rate on the new loan is a lot lower than what you’re already paying.
5. Use the money from your unsecured debt consolidation loan to pay off all of your previous creditors in full. Then make the monthly payments on your new loan on time every single month until you’ve paid it off. Remember, any late payments could adversely affect your credit score and interest rate.
If this solution is not an option for you, then you should pay off your credit cards with the minimal interest method or the debt snowball method.
