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What is Secured Debt Consolidation?

Lisett Comai-Legrand

Lisett Comai-Legrand About The Author

Jan 14, 2020 7:14:00 AM

Dealing with multiple loans or credit cards can be difficult. Every loan comes with its own set of terms and conditions, and it is not unusual to feel overwhelmed trying to keep track of them. Financial institutions provide the solution for this problem through secured debt consolidation

Secure debt consolidation is a convenient approach to get rid of a number of loans once and for all by replacing them with one secured loan.


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Steps to Obtain a Consolidated Loan

There are a number of steps that you need to take after making the decision to pursue secure debt consolidation:

  • Sad man with credit card |First Alliance Credit UnionCalculate the sum of all of your outstanding loans that need to be paid off. Make sure to include all your debts, and include the interest rate, early termination fees or any other penalties. 
  • Most of the time consolidation requires collateral against all the outstanding loans. Consider which financial institution offers the best terms and conditions for your situation.
  • Once you have chosen a lender, you will need to complete an application. You might need to supply bank statements, tax returns, and details of previous loans.
  • The process of consolidation also requires details about each debt you wish to consolidate. The consolidation applicant must provide the lending institution with a document with the owed amount, deadlines and monthly payments.
  • It is also crucial to share the details of collateral with the lending institution. The loan to value guidelines (LTV) of the lending institute play a critical role, as the collateral must be able to fully cover the debt that needs to be paid.
  • Evaluating your collateral is the next step. Usually an appointment is made where the lender sends a representative for a thorough assessment of collateral value.
  • Arrangements are made for closing once the loaner signs a commitment letter and receives approval from the lending institute. This is followed by a request for payoffs on the outstanding loans from the lending institute.
  • All debts are consolidated into a secured loan once the closing has been completed.

Advantages of Debt Consolidation

  • It becomes easier to manage your budget when you no longer need to make repayments on multiple loans.
  • If you have a consolidation plan with comparatively lower debt rates, then it can help you pay off the loan earlier.
  • Secure loan consolidation comes with an opportunity to change the loan term depending on your current circumstances.

Disadvantages of Debt Consolidation

  • Discussing Debt Consolidation | First Alliance Credit Union Applications for secured loan consolidation are not always accepted. The acceptance or rejection greatly depends upon your credit report, number of outstanding debts, and value of the collateral.
  • Since secured consolidation loans are issued after associating the loan with collateral, you risk losing your collateral if you fail to follow the repayment guidelines properly.
  • It may not benefit people extending the terms for longer periods of time since loans with longer terms tend to have more interest in the long run.

Potential Collateral for Secured Debt Consolidation

There are a number of things that can be considered as collateral for secured debt consolidation:

  • Real estate (cash-out refinancing, home equity loans)
  • Vehicles (cash out refinancing, title loans)
  • Retirement savings
  • Personal items 

Consolidate Your Debts With First Alliance Credit Union

Secured debt consolidation is a more convenient way to pay off multiple loans that have high interest rates. You can also save a lot of money in the long term, too. 

If you're ready to consolidate your debts, become a First Alliance Credit Union member today. Our expert team of loan advisors will work with you to get a secured debt consolidation loan with the lowest possible interest rate. This is your year to get debt free! 


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