Secured Debt Consolidation
Secured debt consolidation – simply refer to the act of providing your lender/creditors with some tangible assets in other words secured debt consolidation offers some tangible asset that a creditor can claim if you don’t pay your loans within a required time frame. Some of your tangible asset may include your car, a stock portfolio, jewelry or any other items with monetary value that is accepted by the lender.
One very common way that people use to consolidate their debt is using the equity in their home. For example you can increase the size of your home loan by adding the debt amount to your mortgage and spread it over the term of the loan. This will increase you repayments but since it’s over such a long period of time, the additional payments will be very small. This in turn will allow you to free some of your cash flow to use for other debt repayments, in fact consolidating all your debt into your home loan is one of the most efficient ways of reducing your debt
Here’s an example
Say you have a debt of $10,000 on your car $10,000 on your credit card, and another $10,000 personal loan or any other unsecured debt, and they cost you about $300 extra repayment (on average 10%-12% with credit cards charging up to %18 on cash advance)
If we used $100,000 loan over 30 years @ %5 interest your monthly repayment will be $537 pm .If we then consolidate the extra $30,000 into your existing home loan your monthly payment will increase to $698 pm and you saved yourself roughly $150 pm to use for other repayments.
So simply by using the secured debt consolidation method you managed to save roughly $150 pm and that’s without changing the time length of your loan. The other benefits of secured debt consolidation are the effect it has on your credit score. Faulting on repayment reduces your credit score and makes future borrowing expensive, while paying your debt on time improves your credit score and better rates will be offered to you when it comes to borrowing again.
In conclusion Secured debt consolidation is a very effective way to reduce your debt and free up some cash without having a major change to your cost of living. One of the most effective ways to do so is using your equity in your own home. Regardless of which type of secured debt consolidation method you use, you still need to have a plan for getting out of debt.