Real Estate as a Collateral
When you want secured debt consolidation, you can offer your home or any other real estate as a collateral. As a home is a necessity for people, this is a high-risk loan option. You can either opt for home equity loans or cash-out refinancing.
In the former, you use the equity of your home to get a loan and then use the cash offered to you by the lender to pay off debt. Home equity is the value of your home that you own by paying towards the mortgage.
In the latter option, you replace your first mortgage with a second one that’s completely new and usually larger. For instance, when you want to liquidate $30k of the equity in case, the $30k will be added to the existing mortgage balance as a new loan.
Vehicles as a Collateral
You also have the option of cash out financing if you own a vehicle. In such a scenario, you can refinance a new loan easily. For instance, if the cost of your car is $10000 and you owe $9000 but you want $1000 for paying off previous debts, you can refinance a new loan of $10,000 and get $1000 in cash.
Refinancing is available at a lower interest rate to people who have improved their credit score since the time they took their first loan. This option is also suitable for people who have a high interest debt but want to pay it off to avoid high interest rates in the future. Only people with a fair, good or excellent credit score can choose this option.
Car title loans can be considered similar to payday loans. In these loans, you get money without a credit check. Instead of that, you need to pay high APRs or interest rates. This is also a high-risk option for people who want secured debt consolidation. Data states that between 120,000 and 220,000 people who opt for car title loans end up losing their cars to title loan repossession annually.
Personal Valuables as a Collateral
If you want secured debt consolidation, you can also offer a personal valuable as a collateral. The process is known as pawning. A term we have all heard thanks to reality TV. In it, you trade items that hold value like jewelry or art for cash. The biggest benefit of this option is that you get cash instantly. You can then use the cash to pay off a debt or to get the best secured debt consolidation option.
When people don’t have a home or a vehicle to offer as collateral, or they don’t want to risk losing it, they offer personal valuables as collateral for secured debt consolidation.
Retirement Savings as a Collateral
Many people don’t have a home, vehicle or a personal valuable to offer as collateral for getting a secured loan to pay off debt. If you are among them, you can borrow money from your retirement fund. You can even share documents regarding your retirement income source with the lender offering secured loan to pay off debt.
As money in retirement funds usually grows with time, an honest lender offering secured loan to pay off debt won’t mind retirement savings as collateral. Some people also choose to stop contributing to retirement funds to pay off a debt. Most financial experts do not advise it. You might threaten your financial future in an attempt to secure the present.
This option is best for people who have deep high-interest debt. Before choosing this option, you must consider the debt to income ratio.