Is debt consolidation the answer to your financial struggle? If you are like a lot of other people, you have credit card debt that is eating into your quality of life. You might spend a good part of your paycheck on your credit card balances.
You no doubt have heard about consolidating your credit card debt into one easy payment that will save you money and reduce your credit card burden. But before you go out and try to consolidate, you need to understand the principle involved. You need to understand how lenders view consolidation as far as risk is concerned.
You see, the lender takes into account the chances of not being paid back. If the loan is unsecured, then the interest rate on the loan will be higher. This is why interest rates on credit card debt is much higher than on mortgage loans.
This is an unsecured loan because if you use your credit card to buy a vacation to Hawaii, or a pair of shoes, or tickets to the game, the lender cannot repossess and sell something to get their money back. So the interest rate is high to make up for those who do default on their loans leaving the lender out the money they loaned.
If no one ever defaulted on their credit card debt, the lenders would not have to charge a high interest rated. But they probably would anyway, simply because lenders like making as much money as possible off their loans.
Interest rates are lower on home mortgages because if the borrower does default on his or her mortgage payments, the lender can foreclose and sell the house to recoup their loan. Even when there is a foreclosure crisis and lenders have a full inventory of foreclosed properties; lenders still can lend money at lower interest rates compared to credit card interest rates because the loan is secured by a house. Real property is an asset that generally increases in value.
So when you talk about consolidating, you are talking about taking all of your credit card balances, your unsecured debt, and paying off the debt with the equity you have in your home. Your loan is not covered by your home. The loan is not a secured debt which means there is less risk on the lenders part meaning you will be offered a lower rate of interest. Your loan payments are not also tax deductible whereas your original credit card payments were not. Call today to see if debt consolidation can help you.
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