How to Consolidate Secured Debt Into One Loan

Consolidating your debt into a single, secured loan can give you flexibility and peace of mind. Instead of juggling multiple payments to different lenders, you can make a single payment to a single creditor. Find the right deal and your rates and payments can be lower, saving you a nice chunk of change every month. Once you find the right lender, it is then a matter of qualifying and offering appropriate collateral to secure the loan.

Step 1

Compile a list of all your outstanding secured debt that you wish to consolidate. Add up the total including applicable interest, fees and penalties.

Step 2

Research lenders to find one that is a good fit. Look at rates, terms and fees as well as collateral requirements. It is unlikely that you will be able to consolidate your secured debt into an unsecured loan, so you need to be ready to provide collateral.

Step 3

Complete an application at the lender of your choice. Provide any supporting documentation including tax returns, pay stubs, W-2s and bank statements. Inidcate the amount you wish to borrow as the total of your secured debt.

Step 4

Provide a list of the debts you want to consolidate. Often, there is a dedicated section on the loan application for this purpose. If not, submit a separate listing. Include the creditor name, amount due, monthly payment and due dates.

Step 5

Provide the lender with information on the proposed collateral. The value of the collateral must be enough to cover the total of the debt being paid based on the bank's loan-to-value guidelines -- LTV for short. For example, if you pledge your house worth $500,000 and the bank's LTV is 80 percent, you can get a loan for up to $400,000 as long as your income qualifies.

Step 6

Make arrangements to have the collateral evaluated. The lender will send an independent appraiser to assess the value of the collateral. He will set up an appointment with you to gain access to come up with a value.

Step 7

Sign the commitment letter when you are approved and make arrangements for closing.

Step 8

Request payoffs for each piece of debt you will be consolidating. The payoff figure should include all interest, fees and penalties through the date of closing. It should also include instructions for the new lender to send the funds to satisfy the debt.

Step 9

Sign the loan documents at closing. The lender will forward the new loan funds to your creditors. It does this to ensure the money is being used for the stated purpose. Once complete, your debt will be consolidated under a single, secured loan.

Tip

  • You can check your credit on your own before applying for a loan. The government's Annual Credit Report website allows consumers to obtain one free copy of their credit report from each of the three major bureaus each year.

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