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Debt Consolidation: When to use a Secured Loan

With high unemployment continuing to plague the lives of everyday people, the need for debt consolidation is greater than ever. For some consumers, a secured loan is one of the options of last resort before considering a bankruptcy filing.

Generally, these loans are financial contracts that use your home as security against your total consolidated debt. These loans are generally a tool used by services that offer debt assistance. These services are a tool for consumers who have exhausted traditional lending options. You must have equity in your home to be eligible for this sort of loan. This loan will consolidate what might be a complex payment nightmare into a single monthly payment, increasing your chances of properly planning your personal cash flows.

However, this type of a loan can be something of a financial Trojan horse. While it is similar in nature to a home equity loan, the fees and the interest rate are generally higher than those offered by traditional lenders. There is also an inherent risk that if nothing changes in a homeowner's borrowing habits, then there is a high potential that he or she will be back once again in a difficult money situation.

There is a certain amount of market risk in playing the secured debt consolidation loan card. With home values continuing to drop in some areas, a secured loan against a home can put the homeowner "upside down" making it virtually impossible to sell your home at a profit. In a situation like that, the loss of a job or a forced relocation for work can leave a home owner in an even more difficult financial situation.

That said, for a person that is willing to change their spending habits, has a stable income, and needs to consolidate high interest debt, a debt consolidation secured loan is a viable option worth considering.

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