Debt Consolidation | Everything You Need to Know to Decide
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Being in debt can be a stressful experience, or worse, a way of life. Do feel as if you’re always running out of money before the end of the month? Are your credit cards maxed out?
DO YOU WANT OUT? YOU HAVE CHOICES. LETS LOOK AT ALL YOUR OPTIONS
If you want to get out of debt and live debt free you’ve come to the right place. The effects of the Economy Collapse coupled with stagnant wages have left many families facing the need for debt relief.
It is the worst feeling when faced with a mountain of debt. This can leave you practically tearing your hair out or feeling as if your world was as bleak as a rainy Monday morning. Do you receive repeated calls from angry creditors or even from debt collectors.
In short, your life has become pretty miserable and what you want above all else is debt relief.
First Step | Understand the Several National Debt Relief Programs
There are several types of debt relief strategies. Debt Consolidation Loan, Balance Transfers To Lowest Interests, Debt Management Plan, Debt Negotiation (or debt settlement) and Bankruptcy.
It’s important to know how each of these strategies work so that you can choose the one that best fits your circumstances.
Consolidate and Save Thousands. Free Debt Relief Quote
Debt Consolidation Loan
It is a way to manage your multiple debts efficiently. By consolidating debt, you can repay the outstanding balances at a relatively lower rate of interest and with the help of single monthly payments. One way to achieve debt relief is to get a debt consolidation loan and use the money to pay off your other debts. Secured and unsecured debt consolidation loans are very different in loan types.
For example personal loans are unsecured loans, which means you don’t have any collateral (or you don’t have a car or house for the lender to take if you default on the loan). Its important to understand the type, which makes you a smarter consumer.
Here is a list of different Debt Types:
- Secured Debt: Utilizes a form of collateral. (think a house or car)
- Unsecured Debt: No collateral. (think credit cards or personal loans)
- Fixed Interest Rate Debt: Has the same interest rate for the entire timeline of the loan. (Think mortgages)
- Variable Interest Rate Debt: Interest rate may change over the life of the loan. (credit cards)
- Fixed Payment Term: Loan is set to be paid off by a set date. (mortgage, student loan)
- Variable Repayment Period: No set date by when the debt must be repaid. (credit cards)
- Deductible Type Loan: Loan used to better your personal situation and therefore may have tax benefits. (mortgage, student loan)
- Non-Deductible Type Loan: Loan that is not used to purchase an appreciating asset or new skill. (credit cards, personal loan)
How can you know if a debt consolidation loan would help you achieve debt relief? You’ll first need to calculate the average interest rate you’re now paying. For example, if you have credit card debts that average interest rate is 20% on $50,000 of debt.
If you could get a personal loan at, 10% your monthly payments would drop roughly $350 dollars a month on the same amount of money. Or you chose a home equity loan or home equity line of credit you would also have much lower monthly payments though it would take you more time (15 or 30 year loan options) before you’d have total debt relief.
When Debt Consolidation Loans are for you
- You have to pay only once every month
- You don’t want to pay extra fees and penalties
- You can get out of debt quickly
- You can save on interest rates and monthly payments
Credit Card Consolidation
Are you feeling weighed down by massive credit card bills? Are you getting collection calls from creditors every day? If so, then this is the best time to consolidate multiple debts. How does credit card debt consolidation help you?
- Lowers interest rates and makes monthly payments affordable
- Replaces multiple credit card debts with a single monthly payment plan
- Helps you get rid of credit card late payment fees and other penalties
- Helps you keep track of your debt progress and get financial success
- Helps you avoid bankruptcy and protect credit score
If you have high-interest credit card debts you might be able to transfer their balances to a new one with a lower interest rate or, better yet, a 0% balance transfer card. You would need to calculate the average interest rate on your credit card debts and then compare this with the interest rate on the new card.
Of course, if you could qualify for a 0% balance transfer card you’ll have as many as 18 months’ interest free, which might be enough time for you to pay off the new balance.
However, you’ll need to have pretty good credit to get one of the 0% transfer cards. And you would need to pay off your balance – or as much of your balance as possible – before your introductory period ends as your interest rate could then skyrocket to as high as 19%.
WARNING: BE VERY CAREFUL WITH THIS OPTION. Read the terms of the balance transfer. For example, many credit card companies offer 0% or free balance transfer fees. BUT, after the 18 month terms expire the interest rate could jump to a high interest rate.
So you need to do two things. First, check the terms. Second, have a contingency in place. Its possible, the interest rate will require a transfer after (for example) 18 months to another low rate.
Debt-Consolidation with a Debt Management Plan
A debt management plan is simply that – a plan for managing your debts. While you could create your own plan most people that are deeply in debt choose to go to a consumer credit counseling agency for a Debt Management Plan.
The way this works is that you’ll be assigned a counselor who will develop the plan and present it to your creditors. They will negotiate with them to get your interest rates reduced and any fees waived.
Assuming your creditors sign off on your plan you’ll stop paying them. You will make a fixed payment each month to the credit counseling agency instead.
Your creditors may allow you to keep one credit card to use in case of an emergency but you’ll lose the rest. Your monthly payment should be a lot lower than the sum of the payments you’ve been making. It typically takes from four to five to years to complete a debt management plan but at the end you should have total debt relief.
While it’s possible to negotiate several things with lenders the most popular one is debt settlement. The way this works is that you contact each of your lenders and offer a lump sum payment to settle the debt but for less than you owe.
Although it’s possible to settle your debt yourself most people choose to use a debt settlement company. There are several good reasons for this. The first is that DIY debt settlement means you’d need to have the cash available for your lump-sum settlements.
This problem goes away when you choose a debt settlement company as you’d be making a fixed payment each month to an escrow-type account. Second, when you use a debt settlement company it relieves you from the stress of dealing with your lenders.
A debt settlement program typically takes from 24 to 48 months to complete but then you will have achieved debt relief.
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What some people call the ultimate answer to debt relief is bankruptcy. The way this works is that you hire a bankruptcy attorney who handles the process for you. If you choose a chapter 7 bankruptcy you will see almost all your unsecured debts discharged.
Also, this will include credit card debts, personal loans, personal lines of credit, payday loans, collection agency accounts, and some other types of unsecured debts. However, bankruptcy will not discharge secure debts such as your auto loans or mortgage. It will also not discharge alimony, family support, spousal support, past due taxes and student loan debts.
The downside of bankruptcy is that it will stay in your credit reports for as long as 10 years. Therefore, you will have a very hard time getting new credit after the bankruptcy and it will have a very high interest rate.
Does Debt Relief really work?
Yes, debt relief plans do work. You need to understand that there are Pros and Cons to each option.
Frequently Asked Questions about Debt Consolidation Loan
Q. How does Debt-Consolidation affect credit?
A. The answer to this depends on which debt relief program you choose. If you choose a debt consolidation loan or a balance transfer this could actually have a positive effect on your credit. Also, a debt management plan might help your credit or damage it, depending on your credit report to the three credit bureaus.
Q. Which Debt Settlement company is the best?
A. The website Topconsumerreviews analyzes debt relief companies each year and then ranks what is found to be the top 10. This year it ranked National Debt Relief number one and CURADEBT as number two. Additionally, a BBB Accredited, in business since 2009, and they have helped over 100,000 customers get out of debt.”
Q. Why choose Debt Relief?
A. The best reason to choose debt relief is if you feel overwhelmed by your debts. If behind on bills, and you don’t see any way to get caught up in a reasonable amount of time. The good news is that there’s several ways to achieve it.
Q. Where to go for Debt Relief?
A. There are a number of places to go for debt relief. Included in this group are credit unions, banks, consumer credit counseling agencies and debt settlement companies. Which of these would be best for you is something that only you can determine.