What is the best way to consolidate debt ? Well that is a very good question and the answer can vary often depending on your credit score. Lets take a look at the various options, firstly unsecured loans. This type of loan is a great way to reduce your monthly repayments on credit cards, store cards and other high interest loans, it is also a smart way to borrow money as it does not place any of your assets at risk, for example your home. This type of loan will typically be set at a higher rate of interest repayment than a secured loan and the interest rate will be dependent on your credit score.
So if you have a poor credit rating due to court judgements, bad repayment history or no history of borrowing to name a few then you can expect to either pay a higher interest rate or in extreme cases be refused a loan altogether. So if you are refused an unsecured loan what can you do ? Well I am not a fan of secured loans to consolidate debt but it might be the only option, however there are companies that specialise in sub prime or high risk loans and these should be tried first as securing unsecured debt is not a smart option unless all other avenues have been exhausted.
Secured loans as the name suggests are secured against an asset that you own, they will normally have preferential interest rates and therefore lower repayments than unsecured loans. In the case of non repayment the lender can force your asset to be sold and if it does not cover the loan and fee’s connected with a forced sale you could find yourself still owing the lender a considerable amount of money. Are there any other options if you are finding it impossible to meet your monthly repayments.
In the UK a government initiative has been introduced to help free people from debt who have become embroiled in hopeless situation and would otherwise never be able to clear their borrowings. It is called an Individual Voluntary Arrangement or I.V.A for short, it a formal agreement between you and your creditors , to make reduced payments towards the total amount of your debt in order to pay off a percentage of what you owe generally after 5 years your debt is classed as settled. . It is a legally binding agreement between you and your creditors and has to be set up by a licensed professional called an Insolvency Practitioner. Monthly payments are based on your affordable disposable income and once the final payment is made, any outstanding debt is legally written off. This can amount to as much as 65 of the debt.
In conclusion if you are finding it difficult or almost impossible to keep up with your monthly loan repayments there are several ways to reduce the burden however the golden rule is never turn unsecured debt into secured debt unless all other the options have been explored. Remember this golden rule : THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Author Resource:-
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