Bad credit debt consolidation: The facts

When your personal finances are difficult to manage, it may be time to consolidate your debt. A bad credit debt consolidation loan enables you to clear all of your credit commitments, reduce the repayments and simplify your finances. However, taking out a secured home loan also involves using your family home as collateral.

Advantages of bad credit debt consolidation

Simplify your finances Most of us owe money to several creditors and this complicates our finances. A bad credit home loan involves borrowing a sufficient sum of money to clear all of your credit obligations. Rather than making multiple payments to different creditors, you'll make a single repayment to one creditor each month. Acceptance The provision of collateral means that your application is more likely to be approved. This is because it's easier for the lender to get its money back if you default on the agreement. Borrow more money You may be able to get a larger loan because you're borrowing against the equity in your property. An unsecured loan from peer-to-peer lender, such as Prosper.com, is capped at $25,000. Defined term Unlike credit and store cards, which lack a defined term, you'll know precisely how long it will be before you're free from debt. You'll decide how long you need to pay back the money that you've borrowed. Reduce repayments If a higher percentage of your disposable income goes towards servicing debt, the best home loans can help to reduce your monthly commitment. You could potentially spread the repayment over the remaining term of your mortgage. Low secured loan rate The provision of collateral means that most lenders are prepared to offer you more favorable terms than they would on an unsecured basis.

Disadvantages of bad credit debt consolidation

Loss of home If you default on the agreement, the lender can go through the courts to recover its money. This could result in foreclosure and the loss of your family home. You may need to take out insurance to cover yourself against poor health and unemployment. Costs Unlike an unsecured consolidation loan, there are other costs involved. This includes the cost of hiring a surveyor to assess your homes value and suitability. More interest Although you'll make a lower monthly payment and the headline APR is is less, most homeowners choose the maximum term. This enables you to keep the repayments to a minimum, but you'll pay more cumulative interest. Secured debt Turning unsecured credit card debt and loans into secured debt gives your creditors greater power to recover their money. You may find that a debt relief program provides a better way of balancing your income and expenditure, without any risks.