An unsecured debt consolidation loan is not as easy to get as secured loans, but it is well worth the effort. If for some reasons you cannot get a secured debt consolidation loan then learn how to get and use unsecured consolidation loans so it can put you back in charge of your debt.
If you’re considering reducing your debts but you don’t have a home as collateral, then that’s when an unsecured loan comes into play. You just need to shop around for lenders who offer lower rate loans and apply for it. In some cases lenders are after clients with good credit and employment history but there are ones who will offer you a loan even if you have bad credit.
Pros and Cons of Unsecured Debt Consolidation Loans
Unsecured loans for debt consolidation are loans that do not need collateral and are aimed to help you: avoid bankruptcy, end creditors’ calls, lower debt payments, make one low monthly installment, and eliminate debts.
With unsecured debt consolidation loans, instead of facing creditors that call and send letters reminding that you owe money, you only have to make one monthly payment. Gone is the battle with late and over the limit fees. How much can you save if you can eliminate those fees from your life?
Be aware, though, lenders usually attach higher interest rates to unsecured consolidation loans. The reason is they take a larger risk when they give a loan without security, and to compensate the risks the interest rates on the unsecured loans will be higher than on secured loans.
How an Unsecured Debt Consolidation Loan Works
Getting an unsecured loan for debt consolidation are nothing more than subtracting a series of debts and adding new debts. You may pay less in the beginning, but in the long haul, do the loan really help you? The following example can help you decide whether this type of loan is right for you.
Let’s say that you owe $10,000 to a number of creditors. To consolidate your debts you go to a debt consolidation lender to borrow the loan amount. Here you have eliminated your debts from the other lenders, but you incurred a debt from an unsecured loan lender.
Now let’s say there are also fees equal to $39 plus a 4.49% interest. On a $10,000 unsecured loan for debt consolidation, you would pay around $834 per month to repay the debt. If the company charges $39 plus interest and the capital on the loan, it would only equal around $759.30 per month when applied to the loan. This means that it would take you longer than one year to repay the debt.
Just take a good look at your own case. Review your balance payments and calculate the time you will need to pay it off with help of debt consolidation companies. Also, determine the time you’ll take to pay off all debt if you take an unsecured loan. Compare both options and make sure that you are not making more debt over a long time.