The huge share of the money is borrowed to pay off the high-interest debt due to loans secured against equity. Hence there is a good reason for such a condition. There is a reasonable way offered for the people struggling with debt by the secured loans on a fixed schedule and at a lower rate of interest.
One of the main reasons people take out secured loans against their property is debt consolidation. It can help to satisfy creditors and also help restore financial stability which is realized very well by the consumers. To help you understand whether you are eligible for debt consolidation or not, take a look at a few questions below.
Do I mostly owe a high-interest debt?
Other than a car loan and first mortgages the debt consolidation loans are normally used to pay off the debts. So, the things like payday loans, credit cards and personal loans are things we are talking about. You must ask yourself a question such as the number of debts I owe are those the high-interest debts? If your answer is yes, then by offering you a better interest rate than you are paying currently, a secured loan for debt consolidation will basically cost you less.
A working budget- do I have such?
You will have to show that you have the income to support a borrowing before any bank lets you borrow against the home equity. To put a working budget together is the first step in solving your financial problems in case you do not have any working budget. Always remember that to report all your income and expenditure on a monthly basis a budget is a spending figure. Hence without the working budget never try to get a debt consolidation loan.
If you do not have the income to support debt consolidation, then there is no point in taking it out. But still, if you are somehow trying for it, then it would not be beneficial without a necessary income. If you cannot make your payments then your property will be in danger as the debt consolidation relies on home equity.
Do I need to change spending habits?
Your finances being not in a good shape is one of the reasons you need a debt consolidation loan. To stop accumulating a debt that you cannot afford, you must know that by changing your spending habits you will achieve a key to success in debt consolidation. Try asking yourself if you can change your spending habits because if you are able to change, then a debt consolidation might be right for you.
What are the pros and cons?
For your financial situation if a debt consolidation is the best option, then you might face some positives and negatives which may vary person to person. You can consider some pros and cons like:
- One payment to a single lender.
- Monthly payment and rate of interest are fixed.
- At once you can pay off several outstanding balances.
- To repay the debt the terms are longer.
- Over the term of a loan, you could pay more in interest.
- There is a penalty for prepayment
- Fees are applicable for loan origination.
Possibility of bankruptcy
The final question you must ask yourself is that due to your bad financial position is there any possibility of bankruptcy. If you are bankrupt, then you may need to pay all of your debts and then only you can apply for a debt consolidation loan.
Hence before you make any decision about borrowing, you must take a look at all these questions and answer them wisely to check if debt consolidation is right for you or not.