Guaranteed loans are a hot topic of conversation today among consumers. You may have used your credit cards without any payment problems for years but find yourself stressed over monthly minimum payments today due to job loss or a medical emergency.
Problems in paying off credit balances are not limited to people with bad credit or to those who are not responsible in managing their money. Increases in APR on credit cards have affected those with good credit just as much as they have for those with bad credit.
In the past few years interest rates on home mortgages, car loans and personal loans have dropped drastically. Rates are lower than they’ve been for decades but this rate decrease does not apply in the credit card lending industry.
Increased Interest Rates
Interest rates for credit card accounts have increased and are approximately double what they were in the early 2000s. In part, the increase is due to lender anxiety about new credit regulations imposed by Congress and also a result of economic uncertainty.
Many credit issuing banks created problems for themselves when they lowered the bar for credit qualification in their quest for more and more new customers.
Consumers with good credit ratings are almost guaranteed any type of loans from major banks. If you have a regular income and reasonably good credit you are a good loan candidate.
If your goal is to obtain a loan to permanently pay off credit card debt you are the type of borrower banks are happy to work with. The first step in finding loans labeled as “guaranteed” is to examine the various loan types available.
If you can obtain a signature loan from your local bank or a low interest loan from a relative, this is definitely your best option. A signature loan does not require collateral so does not risk any asset you own to guarantee the loan.
The interest rate will be lower than average credit card APR and you will know exactly what the monthly payment is and how many payments will be required to satisfy the loan.
A loan labeled as “guaranteed” is often referred to as a consolidation loan. You are combining several small loan amounts into one larger loan with better payment terms and less risk involved.
There are many companies that advertise debt consolidation loans and caution must be used before choosing one of these businesses.
Some do offer consolidation loans and these are associated with major banks. Others are promoting plans that do not provide an actual loan but are aimed at reducing your debt through negotiation.
0% Interest Credit Cards
The 0% introductory rate offered by some credit lenders is attractive to consumers who want to pay off multiple credit cards. If you have low balances with high interest rates on several credit cards, this might be an option to consider.
Remember the 0% interest rate is introductory and will revert to a standard variable interest rate when the introductory time period has passed.
This is a method to use only if you can qualify for a new card with a spending limit high enough to transfer your current credit debt to one account. At the very least, you could make maximum payments to the new account during the 0% term and greatly reduce your total debt balance.
Home Equity Line of Credit
The most common loans labeled as “guaranteed” have often been home equity lines of credit. The difference between the value of your home and the amount owed on your first mortgage is the equity. When you take a second mortgage you can access that equity and use it to pay off credit card debt.
The problem with this approach is that it uses your home as security to pay off what was unsecured debt. If you have a low mortgage and a high amount of equity in your home, this may be a logical option.
It is a dangerous practice if you are using your home’s equity to pay for bad spending habits that might continue into the future.
Guaranteed loans are not difficult to find if you have reasonably good credit. The higher your credit rating the more options are open to you.
Carefully weigh the pros and cons of each loan available (e.g high risk personal loans) to choose one that solves the problem of credit card debt without adding an unacceptable level of risk for your financial future.