Secured and Unsecured Debt Consolidation
You have bills, student loan, debts, credit cards, and anxiety... lots of anxiety. The last time things were looking this bad you transferred all your maxed-out, high-interest credit card balances to low-interest credit cards. But then you did what you swore you wouldn't: you maxed out the low-interest cards... except those aren't exactly low-interest cards anymore now that the teaser rate has expired.
So what are you going to do this time?
The first thing you should do is cut up those credit cards... and the old ones, too, if you haven't already. The next thing you should do is look at your options for a debt consolidation loan.
Secured Consolidation LoansDebt consolidation loans come in two flavors: secured and unsecured. A secured loan is tied to some form of collateral — usually a house – hence the name home equity loan or a home equity line of credit. The biggest appeal of this kind of loan is that it is typically the lowest interest loan available for loan consolidation, and the interest is very likely tax deductible.
The biggest risk here is that you'll again get into financial trouble and not be able to make the payments. Even if you have cut up all those credit cards and brought your spending under control, tragedies happen. A downturn at work, an illness, an accident – any one of these could make you face the sickening reality of losing your home. See above: How much anxiety can you stand? If you have a second home – a vacation or rental property – go there for equity first. How about stocks, bonds, certificates of deposit? Any asset will suffice. Only use your house's equity as a last resort. If you can get by with a consolidation loan for a lesser amount, consider using a car or boat as collateral instead.
Unsecured Consolidation LoansIn this case the lender is taking a greater risk; you haven't laid a house or other asset on the line as a trade if you default on the loan. Accordingly, the interest rate will be higher. It's not going to be as bad as your high-interest credit cards, but not as good as a secured loan. The rate and terms you're eligible for will depend largely on your debt to income ratio, and whether you've been missing payments or just squeaking by with the minimums.
Some final thoughtsBe careful of scams. Are you familiar with the term "predatory lender?" Research. Look for the Better Business Bureau's stamp of approval on your prospective lender's website. Does their website include extensive information about the pre-qualification and application process? Are they sticking you with a bunch of up front fees? Listen to your gut when dealing with them during the application process. Are they easily accessible and responsive to your questions and concerns?
The next step is to have a real "come to Jesus" meeting with your spending habits. Take control of your financial future now before it is too late.