There are many reasons that you might be pressed to consider debt relief loans, all of them involving struggling with overwhelming debt. One of the most common specific reasons to consider debt relief loan options, however, is that you have too many different payments to make to too many different lenders. Oftentimes, situations like these come with very high interest rates that can strain your finances considerably in addition to making organizing payments difficult.
In such situations, debt consolidation is helpful for many different people. Consolidating debt can reduce the interest rates on monthly payments. It can even reduce your overall monthly payments by stretching out each payment’s overall term. However, to consolidate debt and benefit from the relief that it provides from debt you must first take out a loan. These loans can also be beneficial when you are struggling with credit card debt.
And that’s where today’s blog post comes into play. Below I’m going to talk about what your different options for debt relief are and briefly touch on how to go about obtaining each of these. All of the debt relief options below can, when used correctly, help you pay off your original debt by consolidating all of your original payments into a single monthly payment. (It is important to note that doing this is not going to eliminate your debt, rather it will offer you relief from paying the debt on the same timescale and with the same amount of interest).
Though there are many different individual debt relief loan options, they all fall under two main categories. These two categories are secured loans and unsecured loans. Let’s start by looking at secured debt relief loans first.
Secured Debt Relief Loans
One of the most common types of relief loans out there, a secured debt relief loan can definitely help you out of a bind. In its most basic sense, a secured debt relief loan protects the lender by securing their loan with some kind of asset or collateral on your side of things. For instance, you can put down collateral such as your home or car which the loan is then secured against.
The only real drawback of a secured loan for debt relief is that you must own items. If you’re renting and don’t own a car, then, chances are, you won’t be able to take out a secured loan. If you do own items but they are not completely paid off, you can usually still obtain a secured loan.
Most lenders will place a lien against the items ‘secured’ in your loan with them. A lien basically means that you can’t sell these properties off before the loan is paid. It also allows the lender to sell these items if you continually fail to make payments according to your agreed upon terms. These terms are upheld until you settle your debt in full, including all of the interest.
Because there is a safety net when you take out a secured loan, lenders will generally feel more comfortable loaning you larger amounts of money. In some ways this can be a benefit as, well…it lets you take out more money. But it can also fool you into taking out too big of a loan and then digging yourself an even deeper hole to get out of.
All in all, secured loans can be a very good idea if you are struggling with debt. If you have a property or an asset that you can put down against your new loan, then you are in the clear. However, it is important to keep it in mind that if you do take out a secured debt relief loan and fail to pay it back on time, you could lose the property that you secured it against.
And, now, let’s take a quick look at unsecured loans, your other main option when you are looking for a loan to help you out of debt.
Unsecured Debt Relief Loans
In most cases, unsecured loans are much harder to obtain than secured loans. This is because of the simple fact that the lender doesn’t have a safety net of something to collect if you are unable to pay them back. Unsecured debt relief loans are ‘unsecured’ with a form of collateral or an asset. However, for many people, this type of loan is the only option.
If you are seeking an unsecured debt relief loan, the lender will always look at your credit history. They will also take a look at your employment history. They do these two things to figure out how likely it is that you will pay them back for the loan. In other words, they are evaluating your risk level.
Your chances of obtaining an unsecured debt relief loan will be significantly higher if you have good credit and a stable employment history. If you have the opposite of this, bad credit and an unstable employment history, then it will be very tough for you to obtain such a loan.
The interest rates on unsecured loans are generally very high, much higher than with a secured loan. This is especially true if you find a lender who will give you a loan even though you have a bad credit history and unstable employment history.
One last thing to keep in mind when considering an unsecured debt relief loan is that, while consolidation might lower your overall monthly payment and monthly interest rates, it will generally cause you to pay larger sums of money at the end of everything. This is because the loan will stretch over a longer expanse of time, thereby incurring more interest.
When you are struggling with debt, it is worth it to consider all of the options. As far as loans go the options are the two discussed above: secured debt relief loans and unsecured debt relief loans. While there are positive and negatives to both, the one that you should ultimately go with depends on your own personal needs, preferences, and history.