| If you find yourself in over your head financially the good news is that you aren't alone, the bad news is that there is no easy, quick fix. Many people think that an unsecured consolidation loan is a great option, and for many it is, but you need to know the facts before you sign on the dotted line.
An unsecured loan is exactly that, it's not secured with collateral. A credit card is a good example of an unsecured debt. The bank gave you the credit card, in a way it's the same as a loan, with the expectation that you'd make payments and pay off your balance.
For the privilege of borrowing the banks money from month to month they charge you a high interest rate. That's how they make their money. They aren't nearly as protected as with a secured loan since there is no collateral they can repossess and sell to pay off your debt if you default on your payments.
A mortgage or car loan are good examples of secured loans. If you don't make your payments the bank will take your house or car. They have more protection in these cases since they can sell the house or car and use the proceeds to pay off the remainder of your debt. The bank isn't as exposed.
If you want to consolidate your credit card debt and you want an unsecured loan you had better have very good credit. The catch 22 of this system is that to qualify for an unsecured loan you will need excellent credit. Theres a good chance that if you had such good credit you're probably in a better financial situation anyway and wouldn't need the loan in the first place!
Most banks are not going to give an unsecured loan to you if your credit has even minor dings in it. If you've been struggling for a while with some enormous credit card debt it's likely your credit has at least a few minor problems with it which means even if you did qualify for an unsecured loan you'd probably be charged a much higher interest rate.
Another thing to keep in mind is that unless you've suffered a job loss, unexpected repair bills, or some other unforeseen emergency that would justify your having a problem paying your bills, you might just be using credit to live beyond your means.
If that is the case getting a consolidation loan would probably cause more problems then it would solve since you'd likely to just rack up a bunch of debt all over again. Unless you change your spending habits for good you'll just keep repeating the cycle until you're so far over your head bankruptcy is your only alternative.
An unsecured consolidation loan might be able to help your financial situation but make sure you go into it with your eyes wide open and with realistic expectations. If you don't, your financial life might get a lot harder. |