First, let's talk about the difference between secured and unsecured debt. If you owe money on a home, your lender required that you put the home up as collateral. That's a secured loan. On the other hand, other debts like credit cards and store accounts have no such collateral securing them, so those companies have only you to look to for payment. They are called unsecured debts. And because unsecured accounts are far more risky, lenders charge much higher interest on them so you will pay a lot more for the privilege. If you would like to eliminate your unsecured debts, read on.
Get a home equity loan or a home equity line of credit (HELOC). There are good reasons why many people take out loans that are secured by their homes to pay off their unsecured debts. First, it allows them to pay off loans that charge 20 percent or more in interest with money that is costing them about one third as much. Second, depending on the number of accounts they are paying off, the amount of their monthly payment may be less than the total they were paying on their unsecured loans Finally, the interest on most loans secured by the equity in your home are exempt from federal and state income taxes.
Apply for a bill consolidation loan. This is also an unsecured account and the interest is high but there are advantages to paying off your other unsecured loans with its proceeds. Your total monthly payment could be significantly reduced. First, if you were to add all the minimum payments on your unsecured accounts, the total might shock you. But because a typical bill consolidation loan has a longer maturity, the monthly payment may be far less than the total you are paying on your existing accounts. Also, the interest on most bill consolidation loans is less.
Ask a legitimate debt consolidation company for help. Essentially, it will negotiate with your unsecured creditors and possibly influence them to reduce the amount that you owe them. Then it will establish a repayment plan that will eliminate all of your unsecured debts within a year or two. If you have debts that require you to make payments on such a plan for more than four or five years, you probably should take more drastic action.
File for bankruptcy if you decide that you can no longer cope with your unsecured debts. The bankruptcy court will end the harassing telephone calls and will probably discharge your unsecured debts, but there are many drawbacks to doing so. First, the fact that you have declared will appear on your credit reports for up to 10 years, making it difficult for you to secure new credit. Furthermore, many people suffer emotionally because of filing for bankruptcy because their friends an neighbors will probably learn about it because it is a matter of public record.