As young adults many of us are taught how to handle money, but we are never prepared for how quickly debt can pile up. We tend to think we can get scholarships to pay for college and that we will have the ultimate job after university to help us get a mortgage paid off quickly. Life tends to have other ideas. It is easy to use a credit card and rack up $4000 in debt before we even know what we’ve done. If you find yourself in a debt situation you have options. You can consolidate unsecured debt.
Unsecured debt is any debt that does not have collateral. Student loans, credit cards, personal loans, and much more can be unsecured debt. Your unsecured debt typically has a higher interest rate. The only unsecured debt that might have a great interest rate is the student loans. Federal student loans from the early 2000’s are at 3.5 percent or less for APR. When you consolidate unsecured debt you need to know what interest rates you are paying. If you pay 2.5 percent APR you might payout $165 in interest a year. It is always subject to the amount of the loan. However, with an interest rate of 8 percent you are definitely paying out more in interest than you are on the 2.5 percent per year.
You have to know what debts you will use to consolidate unsecured debt. Student loans and medical bills are two things you should leave out of your plan to consolidate unsecured debt. High interest rate debts like credit cards definitely need to be consolidated, but how you do this can differ.
You can consolidate unsecured debt on to one credit card. If you have $4000 in debt and a credit limit of $6500 you have plenty of room on one card to consolidate your debts. This will only consolidate your credit card debt. If you have other lines of credit you will need a consolidation loan to consolidate unsecured debt. A consolidation loan may also be unsecured, but you can do a secured loan. A secured loan would be a home equity loan.