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Types of Debt You Can Consolidate

Posted By:  |  September 2, 2016  |  0 Comment(s)

Unsecured Debt


When it comes to debt relief, unsecured debt is more commonly settled and consolidated than secured debt. Unsecured debt is not tied to assets or collateral, and often consists of personal loans, credit card debt, or medical bills. While not making payments can negatively impact the client’s credit score, lenders cannot claim property or assets when people don’t make payments for unsecured debt.

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Debt consolidation and debt settlement programs typically only work with unsecured debt. Lenders look at the following when determining borrow worthiness: character, capacity, capital, collateral, and conditions.

The following types of unsecured debt are frequently seen:

Credit Card Debt

This is the most common type of unsecured debt. Balances carry over and people can continue to borrow every month. People should be careful with this kind of debt because high interest rates can really add up when borrowers don’t make their payments. In 2015, Americans collectively carried around $925 billion dollars on their credit cards.

Medical Debt

In most all cases, people do not choose to incur medical debt or bills. Medical debt often comes unexpectedly, and can add up fast. Studies show that around 29 percent of adults in the U.S. have medical debt and struggle to pay their bills.

Personal Loans

People use personal loans for a variety of reasons, whether it is to start up a business, go on vacation, help pay off debts, etc. The interest rate and approval of personal loans often largely depends on credit score. Personal loans usually have lower rates than credit cards, and require identification like a driver’s license, or a social security card.

Secured Debt


Secured debt is not as commonly accepted into debt consolidation and debt settlement programs because it requires collateral. Secured debt is usually for the big-ticket items, like house mortgages and car loans, and requires people to give up assets if they don’t pay the debt.

Mortgage loans are secured by the house and auto loans are secured by the car. This kind of debt is considered less risky for lenders since they can typically take back the asset when people do not make payments. Additionally, lenders maintain specifications to keep the asset’s value.

People can consolidate secured debt. In this case, people would use the asset of the loan as security. While consolidation is an option for secured debt relief, consumers will still lose their asset if they do not make payments. Home equity loans and cash out refinancing are both types of debt consolidation loans. People having trouble making their payments can also call their creditors and see if they are will to create a new repayment plan. While it may be slightly easier to find debt relief for unsecured debt, there are options available to help people struggling with secured debt.

 

Sources:
https://www.debt.org/credit/unsecured/
http://credit.about.com/od/credit101/a/securevunsecure.htm
http://www.greenpath.com/resources-tools/financial-library/loan-types/secured-vs-unsecured-loans
http://www.investopedia.com/ask/answers/110614/what-difference-between-secured-and-unsecured-debts.asp

 

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Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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