Consumers can borrow the value of their stocks, bonds and other securities in the brokerage company's margin account for debt consolidation. This method of debt consolidation [called margin deposits] can save consumers interest costs compared to installment loans or lines of credit.
The brokerage company allows consumers to obtain a margin loan by check or by using a debit card tied to a margin account. Once the consumer receives the money, they will use the proceeds to pay off all the debt. Margin loans do not have a fixed repayment plan and can benefit the debt consolidation indefinitely.
Margin loans have a floating rate, usually less than 8%, which supplements the debt consolidation by allowing the consumer to pay less interest than the interest rate on the existing debt. With a margin loan for debt consolidation, consumers can deduct 75% to 90% of their account equity or net investment.
However, the use of margin loans for debt consolidation requires a number of risks that consumers cannot control. If the market value of the securities falls, the broker may force the consumer to deposit more cash in the account to compensate for the reduced value of the stock. The brokerage company refers to this demand as a margin call.
When a consumer uses a margin loan, the risk of meeting the margin call may offset the purpose of the debt consolidation. If the consumer is unable to meet the margin call requirements, the broker will sell the securities.
As long as consumers consider the risk of securities reduction, debt consolidation using margin loans can provide consumers with an effective and convenient way to repay debt.
Orignal From: Debt consolidation and margin loan
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