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.
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.
About the author:
Carrie Reeder is the owner of
www.abcloanguide.com, an
informational website about various types of loans. View her
recommended
Online
Debt Consolidation companies.
