Debt Consolidation: Can You Consolidate Secured Debt?

If you’re in over your head with secured debt, you’ll need to move – fast. Not only is your peace of mind at stake, but your property usually is, too. You’ve likely heard about debt consolidation, which is why you’re reading this. 

However, can you consolidate secured debt? 

Let’s explore.

What Is Secured Debt?

A secured debt is one in which the borrower pledges some asset such as their house or car as surety or loan collateral. This means that, if you fall behind in your payments, the lender can sell the property and use the proceeds for repayment.

On the flip side, unsecured debt is any debt that doesn’t require collateral. Examples include medical bills, personal loans, and credit cards. In these cases, consolidation is possible, or you can avail yourself of a variety of debt relief programs at www.freedomdebtrelief.com and other debt negotiation or management firms.

What Is Debt Consolidation?

Debt consolidation rolls multiple debts, usually high-interest obligations such as credit card bills, into a single payment. Depending largely on their credit status, borrowers may get a more favorable interest rate or a lower monthly payment, or sometimes both.

Secured Debt Consolidation

Yes, you can consolidate secured debt. Still, to get your collateral released, you must make certain the secured lender is paid in full. In some cases, you might be required to give collateral to the new lender. In fact, this is always the case when consolidating a home mortgage.

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Consolidating Mortgages

Mortgage consolidation is common kind of secured debt consolidation. If you have two mortgages on your abode for example, you may wish to consolidate them into one. For this to occur, you must find a lender that has favorable refinance terms.

The lender will appraise your home to be certain its value covers the loan you’re seeking. For instance, if you’re aiming to consolidate a first mortgage that has a $100,000 balance, and a second mortgage with a $30,000 balance, you’ll need $130,000. However, you will only get that amount if the house is worth at least $130,000.

If you’re approved for a refinance, your new lender will pay off the old mortgages. You will also need to sign new paperwork giving the new lender a mortgage on your house. The old mortgages will be discharged by the original lenders.

Personal Property Refinance

Secured loans on property that aren’t real estate – such as cars and large appliances, for example – can also be refinanced. The new lender will assess the property’s value to be certain it’s worth as much as the loan, then pay off the old loan. Loan payments will go to the new lender, which will have a lien on the property.

Converting Secured Debt Into Unsecured Debt 

This is one strategy for debt consolidation, and one way to achieve it is by using a credit card with a high limit to pay off a car loan. After receiving the full balance, the lender will release the lien and you’ll own the vehicle free and clear. This may be a particularly good idea if you have a zero-percent balance transfer offer from a credit card company.

Another option is to get an unsecured personal loan. Major banks frequently offer lines of credit or unsecured loans to those who have high credit debt, allowing consolidation at a fixed rate. Usually, such personal loans can go toward whatever you like, and while the aim is to use them to get rid of other unsecured debt, you can also use them to erase a secured debt.

So, can you consolidate secured debt? You see that the answer is yes. Run your numbers, research lenders, and see if this is a good financial strategy for you.