Few years back, the US news ran nationwide survey of around 1K consumers who said they have taken out debt consolidation loan. The survey actually asked consumers about debt, and why and how they got into this option. They were even asked about the effect of debt consolidation loan on their respective financial lives. These loans were always noted to be one good choice for over 60% of respondents. They indicate their loans have helped them lower the current monthly payments improve credit score and even helped in lowering or eliminating debt. Around 58% of respondents did not even compare pre-approvals from more than two lenders.
Used for managing all kinds of debt:
It is not hard to state that debt consolidation loans are used for managing all levels of debt you are in. respondents indicated that they actually used debt consolidation loans quite frequently for consolidating around $5000 to $10,000 worth of the debt. It was covering around 21% of respondents. There are some other respondents, who have used such loans for debt levels larger and smaller accounts, which can include $5K by 19% and over $50K by 15.3%. No matter how small or big the loan amount might be, debt consolidation came as a long time savior all the time. To know more about that, checking out some simple reviews will help you get to the core and procure some values now.
Over half of borrowers are actually consolidating credit card debt:
Credit cards happen to be the most common form of debt consolidated service with 56% of respondents indicating to have been using credit consolidation debt for covering credit card based debt. Student loans, personal or medical bills, and even payday loans are some of the other common examples of debt consolidation with loans.
- The largest challenge in paying for the debt has to be the interest. However, many people are getting such loans so that they have to deal with a single monthly payment with fixed or lower interest rates.
- Around 29% of the respondents have accumulated interest charges as the largest challenge for paying debts. Others were mainly challenged by budgeting for debt payments and keeping track of some of the accounts, paying timely and with inconsistent income.
- Under 30% of the respondents procured debt consolidation loan for losing interest rate ad manage to challenge accumulated interest based charges. However, consolidating into single monthly payment has popular motivation for getting debt consolidation loan with 35% of respondents. They indicate this point to be the main reason to get loan.
- Moreover, around 32% of respondents procured debt consolidation loan for the sake of lower monthly payment over here.
Came out with positive outcome for 63% of respondents:
For majority of the respondents, debt consolidation loan proved to be a good choice. Around 28% of them were able to lower monthly payments using the present debt consolidation loan. Around 27% of them lowered or eliminated debt through this help and the rest 9% improved credit score. But, that does not meant debt consolidation proves to be a good choice for everyone. Around 9% of them accrued more dent, 5% paid more overall interest rate and 2% lose their collateral.
How debt consolidation actually works:
Debt consolidation comes under two heads; secured and unsecured. The main difference between these two options is that secured debt loans use collateral while the unsecured ones do not. The latter one is more common but you can also use secured loan for unsecured debt too. The example goes like home equity loan used for the current credit card based debt consolidation.
Heading towards secured debt consolidation:
Secured debt consolidation based loans are available at physical financial institutions like credit unions and banks. They always watch out for collaterals like home equity for securing home equity loan and comprise of better interest rates than the unsecured ones. In case, you have any collateral and can match with the requirements, secured loan might help in saving some bucks on interest as you can pay down the debt.
- Home equity based debt consolidation loan is a form of secured debt loan offering you with fixed interest rates. The interest paid on home equity loan is mainly tax deductible but the credit card interests are not like that.
- Well, the home equity loans designed for debt consolidation can be a bit risky to consider as the home might end up being foreclosed if you fail to pay the loan on time.
- The danger remains if you eat up a major part of the home equity. Therefore, it is always mandatory for you to have plenty of cushions so if anything happens and you might have to sell your house or need to move, you don’t end up losing your place.
- The repayment term might be 10 years or more, and the home’s value might drop during that time. You might even owe more than the worth of your place. In case, you are facing any form of bankruptcy, credit card based debt remains unsecured and discharged more easily than home equity one.
The unsecured version of debt consolidation loan:
The unsecured debt consolidation does not need collateral and will have easier approval requirements when compared to secured based debt consolidation loan. The unsecured ones will have income requirements to be as low as $24K annually, and the debt to income ratios can be around 50% and minimum FICO score of the credit is 600.
These loans are primarily offered online through marketplace lenders and banks. It makes applying super convenient and easy, and some providers might even offer instant approval online. It means you will know immediately if the loan is likely to work for you or not.
Catch up with the best option whenever the matter is revolving around debt consolidation work. Based on the requirements, the unsecured and secured versions will work great for you. Be sure to learn more before finalizing on the implications over here.