Should I Move My Unsecured Debt Over To Secured Debt?

Online, December 5, 2011 (Newswire.com) - If you have unsecured debt, you may be looking for a way to get it paid off as quickly as possible. You may even be considering transferring that debt into a secured loan - like taking out a second mortgage to pay off your credit card bills or taking a car title loan to pay off other bills.

But bear in mind that this puts your home or car at risk. It's better to work on paying of your unsecured debt quickly.

Secured loans are available to people who have been denied unsecured loans and are an excellent way to work on building up your credit score. Banks like them because there's a lot less risk involved, and the lower interest rate is an advantage. But keep in mind that you will have to put up collateral, and most banks will require a home or auto in order to make the loan. You may be able to put up a CD or other savings account as collateral, but you won't be able to get to your money if you have need.

There are several types of secured loans. Mortgages and car personal loans are the most common, but you can also get a secured credit card by attaching a certificate of deposit to a credit card. Banks do this for customers who are seeking to rebuild their credit score. The credit limit is the same as the CD, and if you fail to repay it, the bank takes the money from the attached CD.

Turning unsecured debt into secured debt is never a good idea. All too often, the only consideration given in this decision is to the lower interest rate and monthly payment; people don't consider the fact that they are moving unsecured debt and attaching it to their home or auto.

But still, unsecured debt has no collateral, and therefore has a higher interest rate. This means you can't lose your home or car, but your wages can be garnished if you don't pay. If something were to happen to you and you fell behind, the card issuer could sue you for payment, but your home would be safe. If you attached your unsecured debt to your home and you missed payments, the bank has recourse to take your home away in order to pay the debt.

If you truly wish to get out of debt, the first thing you must do is set up a debt payment plan. Next, you must lower your debt to income ratio - in other words, your income should go up and your debt should go down. Your payment plan is the obvious solution.
Pay off your old debt first, and then concentrate on the debt with the highest interest rate. And stop using credit cards - even if it's difficult. You have to stop racking up debt if you are serious about wanting to eliminate it.

Last of all, stay focused. Keep your goals in mind, and track your progress. You'll soon see your debt go away, and you won't have put your home on the line in order to accomplish it.