Secured debt consolidation loans are loans that require collateral and are used to pay off other existing debts. Once the old debts are consolidated, the borrower still owes the same amount of money but will only have to make one monthly payment. Interest may accrue slower, too. The collateral will make it easier to get a bigger loan with a lower interest rate than your credit standing and income would normally permit. The tradeoff that comes with secured debt consolidation loans is that you could lose whatever collateral you put up if you don’t pay the bills on time.
Most debt consolidation loans are just unsecured personal loans (which you can use for any purpose). But some lenders will let you secure a loan with an auto title, stocks, real estate, collectible items, or other valuable property. This can make sense for debt consolidation if you have something of value that you’d prefer not to sell outright for debt repayment money but are comfortable putting at risk. If you’re not at all prepared to lose your collateral in the event you default, it may not be worth getting a secured loan. In addition, if you’re not able to get an APR that’s significantly lower than the rates on your existing debts, it’s likely not worth it either.
There’s one other type of loan that could be considered a secured debt consolidation loan – a home equity loan. You can use a home equity loan for nearly anything you want, including debt consolidation. And a home equity loan is secured by your house, so the lender can foreclose if you don’t pay them back. The amount that you can borrow is a percentage of your home’s equity, which is the value of your house minus how much you still owe on your mortgage. Home equity loans typically require a credit score of at least 680, according to the credit bureau Experian. That’s toward the top of the fair credit range.
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