Secured Loan Debt Consolidation
by: Carrie Reeder
Secured loans make your creditors feel more
secure about loaning you money. When someone takes out a secured loan, that
simply means there is collateral to back up the money they borrowed. This
could be a car, or more commonly, a house. There are pros and cons to getting
a secured loan as opposed to a standard loan for debt consolidation.
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Home Equity Line of Credit
- Perhaps one of the most common secured loans is the home equity line of
credit. This loan amount is based on how much equity you have in your home.
Once you take out this type of secured loan, your house becomes collateral.
The most positive aspect of a secured home equity loan is that the money
you borrow is tax deductible. For instance, if you have $5,000 in credit
card debt, you can roll that over into a home equity line of credit. The
credit card payments are not tax deductible, but the home equity loan is.
In contrast, standard debt consolidation loans are not tax deductible.
Interest Rate Advantages - Another advantage
of using a secured loan for debt consolidation is the interest rate. For
many people, credit cards are the source of their debt problems. Credit cards
have enormous interest rates. Since secured loans are "secured" by collateral,
they tend to have significantly lower interest
rates. |
After discussing the pros, it is important to understand the con of using
a secured debt consolidation loan. Again, many people use a house or a car
to secure these types of loans. If you happen to default on the loan and
cannot make payments, your house or car will be in jeopardy. A house is usually
the largest asset someone owns. You do not want to put your most valuable
asset at risk.
For some people, debt consolidation is the best
option for their financial problems. Be sure to carefully weigh the pros
and cons before choosing to use a secured loan for your debt consolidation.
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