Unsecured loans offer you a way to put all your debts into one place.
This helps you keep organized, and means you have only one, small monthly payment to make.
They usually also carry a lower interest rate than your highest credit card, and this can be a relief as well.
Why The High Interest Rate!? Unsecured consolidation loans carry a higher interest rate than secured loans.
Sometimes this can be almost as high as the bills you were paying! So, why the high rate? The reason is simply that you are offering no collateral.
A secured loan offers a house or something else of value as collateral.
This means that if you don't make your payments, they'll take your house.
"Unsecured" means that there is nothing tying you down to paying it back.
The high interest rate is used to cover the lender's risk.
But I Have Every Intention To Pay! You've laid it all out, repented your past spending sins, and you've got every sincere intention of paying it all back, interest and everything...
so why don't they trust you to do so? If you've come this far, don't they realize you're serious? Of course the lender knows that you mean well, and that you want to get this burden lifted off your shoulders.
But then again, you ran up those credit cards with every intention of paying them back, right? Spending more than you make is the American Way; you're not the only one.
But lenders have to cover their risk somehow to ensure that they can get their money back.
Be Realistic Success depends on being realistic, and knowing what you can expect from an unsecured loan.
It's not a miracle that wipes away all your debt worries.
Here are a few things you should think about.
- You still must make the monthly payments! Getting the loan and consolidating debts doesn't fix the problem.
It just offers relief and a more manageable way for you to get your debts paid off.
Don't default on it or you'll face fees and everything else.
- Getting a new loan may hurt your credit.
For most of us in dire straits, this is not a big deal, but you should check with the lender first to see what long-term effect this will have.
- An unsecured loan will extend your debt period.
What it does is take the huge monthly payments and break them into smaller ones, meaning that the entire period will be longer.
Talk to your lender about what your new unsecured consolidation loan will mean to your finances.
It may be the solution you're looking for.