Secured debt consolidation is one method a consumer can use to relieve the pressures of having many bills and not enough money each month. This new, larger loan will repay all the other debts combined. It may also have a lower interest rate than credit card or store debt. A consolidation loan may also run for a longer period of time than all the other credit debts combined, because the final total will be higher than the sum of all the debts that are being repaid. This is because the lender will be adding their interest to this new loan, even if it is a lower interest rate. The total may be more than the combination of debts because the amount will be paid over a longer period of time. However, it is possible that the person may experience a relatively low increase in overall debt due to the lower interest rate advantages. In some cases, it may amount to a wash.
The major benefit to taking out secured debt consolidation loans is that the person will be rid of all the old debts at once, and only have one bill to deal with monthly. This is easier on the budget, and since the amount of each monthly payment is less than the sum due monthly for the previous bills, the payment is easier to make. It will fit into the monthly budget better than the old total amounts did.
If a person has excellent credit, and only wants to make budgeting easier, it may be possible to obtain a non-secured debt consolidation. To obtain a debt consolidation secured loan it is important to have a good credit record also. If the person is so far behind that their credit history is negatively affected, getting any type of new loan may be very difficult. In those cases, there are other solutions.
A non-secure loan is basically a signature loan, with no collateral to back it up. This is a good faith loan, and is usually reserved for those with excellent credit. Secured debt consolidations require collateral to back it up, such as a house, or a vehicle. This helps to ensure the lender that the loan will be repaid in a timely manner. The lender likes to have collateral because if the borrower later defaults on the loan, there is something tangible that the lender can claim, collect, and sell to help pay off the debt.
If you have a lot of non-secured credit debt, it is not a good idea to move them into a new loan that requires security collateral. With non-secured loans, there is pretty much nothing the lender can do to collect in default. There is nothing to back up those loans. If a debtor moves unsecured loans into a new secured loan, there is the added risk that in default they will lose their collateral. It is not nice to lose your home or vehicle!
There are good reasons to move unsecured debt into secured debt. If you have no problem making payments but have a lot of different credit/debt accounts, and just want to simplify your life, that is a good reason to want only one payment. Getting lower interest is another good reason. Just be sure before you make a move that the long term effect will actually result in an overall savings for you, or it will not be worth doing. It is just plain easier to take out debt consolidation for secured debt, so you should definitely consider whether you should consolidate secured debt as a matter of priority.
If you opt for a secured debt consolidation, some companies require that you not open any new accounts. That is a great idea until you get your finances and budget back under control.