Unsecured Debt Consolidation

Frequent shopping sprees, eating out several times a week and an unexpected and expensive car repair have left you with a huge credit card bill and barely enough money to make the minimum payments on it. With an average interest rate of 18%, unsecured debt like this is a bad debt situation that is only going to get worse, unless you take action to consolidate your debt and get rid of your unsecured debt load.

What is unsecured debt?

Unsecured debt is debt that is not tied to any form of collateral and has no equity. A mortgage, for example, would be considered secured debt because it is attached to the property. If a homeowner were to default on their mortgage payments, a lien could be placed on the house, or in more extreme cases, the home could be repossessed in lieu of payments.

As such, unsecured debt is harder for creditors to get back from you. There is no collateral for them to take in place of this debt, so often, creditors are stuck calling you, demanding their money. They can attempt to sue you and hope that the court will allow them to garnish your wages, but before such severe action, consumers can attempt to get a loan to pay off their unsecured debt. Because of the risk involved in unsecured debt, such as credit cards, it generally comes with a much higher interest rate.

Options in dealing with unsecured debt
There are a few options you have in dealing with unsecured debt, depending on your credit history and the amount of money you owe in unsecured debt. A home equity loan is one such option. However, it is only available to homeowners with equity in their property. The benefits of a home equity loan are that they come with fairly low interest rates and make your repayment that much easier.

However, home equity loans also mean that your unsecured debt becomes tied to your home. If you are in serious financial trouble, this is not a good option for you since defaulting on payment could result in the loss of your house. Moreover, you need to think about what got you into the situation you find yourself in. Is your unsecured debt from overspending with credit cards? If so, that problem needs to be addressed, or even a home equity loan won't help and your house will be at risk.

Unsecured debt consolidation loan
For those who are up to their eyes in unsecured debt and have no home to borrow against, your only option, avoiding bankruptcy, is debt consolidation. An unsecured debt consolidation loan probably comes with a higher interest rate than a home equity loan, for example, but there aren't the risks of losing your home on the line. However, an unsecured debt consolidation loan generally offers a lower rate of interest than your high interest credit cards that you are making payments on, but seeing no progress. In addition to reducing the APR, an unsecured debt consolidation loan will reduce the unsecured debt payments you are making to one payment each month that is distributed to all of your creditors. And because the loan is amortized over a long period of time, your monthly payment is reduced, so you don't have to lose sleep at night worrying about how you will be able to make each month's payment.