They use collateral, such as home equity used to secure a home equity loan, and generally have better interest rates than unsecured ones.
If you have the collateral and can meet the requirements, a secured loan may save you money on interest as you pay down your debt.
Unsecured debt consolidation loans are offered online through banks and marketplace lenders.
This makes applying for a loan convenient, and some providers offer instant approval online, so you can find out right away if a loan is going to work for you.
Home equity debt consolidation loans, a type of secured debt consolidation loan, offer a fixed interest rate.
Interest paid on a home equity loan is usually tax deductible, while credit card interest is not.
However, home equity loans for debt consolidation can be risky, as your home may be foreclosed on if you can’t pay your loan.
“The danger is if you eat up a significant part of your home equity,” says Gerri Detweiler, education director of business credit website
When you do a hard inquiry during the final approval process, it will be reflected on your credit report. Although debt consolidation loans are a legitimate solution for eliminating debt, some other debt consolidation options are scams.
However, if you have multiple hard inquiries within a 45-day period, it’s considered rate shopping and will only count as a single credit inquiry. It’s best to stick with trusted, well-established lenders such as the ones recommended on our list.
When shopping for a debt consolidation loan, you should watch out for red flags including aggressive sales representatives, guaranteed approvals and quick-fix promises, as well as requirements such as upfront payments before loan approval or access to bank accounts for automatic withdrawals.
While unsecured debt consolidation loans can be easier to obtain and more convenient than secured debt consolidation loans, they generally have higher interest rates, so they are more expensive to pay down than a secured debt consolidation loan.
Getting a debt consolidation loan is a major financial decision and one that shouldn’t be taken lightly.Debt consolidation loans are used to pay off and simplify existing debt by consolidating multiple payments and accounts into a single account with one lender and payment. Depending on your creditworthiness, you may be able to receive a lower interest rate on a debt consolidation loan than you are currently paying on your debt, saving you money on monthly payments and overall interest.