How Debt Consolidation Works?


When one has too many debts one considers filing for bankruptcy. But one should be too hasty in doing so. There are other possibilities one can consider life debt consolidation.

How Debt Consolidation Works?

Filing for bankruptcy has a lot of adverse consequences. It remains on the credit files for no less than ten years and not a single lender will consider the defaulter as a client for a minimum of two years.

A number of agencies offering debt consolidation are present to help one sort out one’s financial problems. An agent is assigned to help negotiate on one’s behalf with creditors. This agent will discuss the issues with the client, digging deep in to assets, debts, income, job and expenses and analyze the situation. One must be honest and cooperate with the agent and provide all the necessary material. Once the agent has finished assessing the situation, he will put forward a program or plan for debt consolidation that is suitable for the client’s needs. He will then arrange for the creditor to meet and discuss the new payment programs. These agents have extensive experience in this field and can ensure extensions on the loan period or reduced debt payment. Sometimes these have been known to yield up to sixty five percent reduction. One is then expected to submit an application for loan consolidation to repay the debt.

If one does not submit the loan consolidation application, one can try to get a single repay scheme from the agency itself. Many agencies offer provisions for repayment collection services to the defaulter and deliver it to his or her creditors. So one has to make only one reimbursement to the agency and it is the agency that then takes care of paying off all the outstanding debts.

Thus, filing for bankruptcy is not the wisest of ideas unless one has exhausted every other avenue. Just when one feels like there is no other option, something does come through. The system is built that way.

Interest Only Debt Consolidation Loans

Financial crisis can take place at any moment. In a country like the US where an average individual holds minimum of 13 to 15 credit cards, the banking sector is purely enjoying. Certainly the credit report never looks impressive. Banks provide funds for unsecured loans to help debtors consolidate their debts.

However, consolidation loans for poor credit are rarely available as banks treat such customers as high risk borrowers. This happens when they find the credit report is insignificant. Consolidation of debts seems working for individuals who have more than a single debt and find it difficult to clear the monthly payment.

Interest only loans for consolidation of debts indicate that you have the leisure to pay your monthly payments. However, the interest payment that is required to be paid monthly. In this case, the borrower has the advantage of skipping the principal amount for a certain period of time. This does not imply that one can enjoy this privilege for a long time. Or else, you would end up paying double the amount at the end of your loan term.

It is important to understand that it is a short-term convenience. Hence, constant checks to control your finances need to be set up. If your consecutive monthly debt payments have become mind boggling and the interest rates have soared high than the existing rates then an interest only consolidation loan might be a breather. On the other hand, if your income is limited and you do not manage to earn more and clear your principal amount, you will end up paying even extra. You can decide which one of the ways would be ensuring enough. It is an easier way to save few thousand dollars and still improve your credit report. So, enjoy these programs for credit card dues, student loans, secured or unsecured loans and car loans.


Debt Consolidation With Signature Loan

Signature loans are also termed as personal loans. This is a form of unsecured loan, which is not backed by any collateral. Usually people put up their homes as collateral but with personal loans one need not do so. Personal loans help to settle soaring interest debts that one procures. This means that one has to make only one payment with single interest as opposed to higher interests and multiple payments. Loans taken for consolidation of debts can provide you with discounts if one is on the brink of bankruptcy.

Taking personal loans to consolidate loans is indeed the best option.

If one is embroiled in debts because of expenditure done on his/her credit cards, debt consolidation may be helpful in the form of personal loans. However, one must take care of limiting the amount one borrows. A large loan might mean more trouble. One must weigh the disadvantages and advantages wisely. Personal loans help settle debts with higher interest and leave some extra cash for the borrower to use to improve their homes, take a vacation or cruise, plan weddings and save for a rainy day in case of emergencies.

When one applies for a loan one must keep in mind a few factors like the amount of loan.

The amount one borrows determines whether it is unsecured or secured. Anything between $300 and $7,500 is considered to be unsecured. But those with really high debts might have to provide a collateral if they want to borrow more than $5,000. One should also consider the rates of interest charged on the loans. Secured loans have lower interest rates than unsecured ones. The loan period is also an important factor. Unsecured loans must be repaid in the span of five years. One should technically also have a decent credit score when applying for loans.

What Is The Best Debt Consolidation Service ?

The best service for debt consolidation would be from your credit union or bank. They will also be the most reliable. You basically take a loan and the service will issue the required checks to the creditors. After this, you must ask for a duplicate copy of your credit file and update it. This will ensure that you closed all old accounts and made timely payments, and therefore, will be in good stead for a good credit score. The only drawback is that the rates of interest can be pretty high.

Other services negotiate with the creditors in order to reduce the rates of interest and your payments each month, and ask for an extension on you loan period. You make one payment to the agency and they distribute it to your creditors. Those, who pass themselves off as “free” service for consolidation of debts, are not in fact so. It applies only to obtain a quotation from the agency. There is usually an enrollment fee, which depends on how many creditors your program covers and how much you owe.

The CCCS is the most well known service of America. They are located across the nation and operate online as well. They have been in the business from the latter half of the 70s. Creditors themselves recommend this organization to defaulters who are struggling to meet the payment deadlines. FDCS boasts of eliminating finance charges and offer applications over the telephone and the internet. They also claim to cut down your monthly installments by a whopping sixty percent. They talk of free quote but one must read the fine print to realize that is not so. To find out which agency or service is best suited for you, you should acquire an estimate from them all. The Fair Debt Collection Practices Act helps you know and understand a debtor’s rights.


Tips For Credit Card Debt Consolidation

Credit cards have become an inseparable part of every American’s life. Every American has at least one credit card to his name. However, many people fail to recognize the usage and importance of a credit card. As a result, these people incur serious debts while using a credit card.

Related: Everything You Need To About A Secured Credit Card

Credit card debt consolidation can be simply described as consolidating all the available higher interest credit card debts of a person into one single credit card at a lower interest rate. Credit card debt consolidation is an effective credit card debt management strategy that can prevent an ignominy of financial disaster.

There are different strategies using which one can get a better deal on a credit card debt consolidation.

#1 There are various financial organizations and credit card companies offering credit card debt consolidation at convenient interest rates and repayment terms. One needs to shop around in order to get a good deal.

#2 Most of these financial organizations offer their services through online portals. It is very important to get quotes from different companies. A comparison chart will be able to provide a better guidance on which one to opt for.

#3 In certain cases, companies offering online credit card consolidation loans have different terms and conditions in comparison to offline offices. It is important to check for both in order to find a good one.

#4 One needs to know the right time for debt consolidation. A person can opt for debt consolidation in cases where he has more than five cards in his pocket, or is paying high interest rates for more than five numbers of debts or in situations when the person finds his debts becoming unmanageable.

#5 Apart from lower interest rates, one has to look for the market credibility of the company before choosing a good one. This is useful in avoiding debt consolidation scams.

#6 Apart from analyzing the advantages of debt consolidation, one has to understand the risks involved in these loans. Debt consolidation involves longer repayment terms at lower interest rates. Since the interest rates are lowered, credit card owners can get lured to do some more shopping using the card. These situations can be dangerous.


How To Find Cheap Credit Card Debt Consolidation Loans ?

Over the past few years, Americans have gone through severe financial constraints. If you too are in a similar position then you could consider getting yourself a credit card debt consolidation loan as it is guaranteed to help you regain your financial foothold.

If you give it a thought for a while, you will realize that if paying off the minimum balance is difficult, then time is not on your side at all. In effect, you will not be able to diminish the sum of money you owe to the bank and you will also be threatened with paying very high sums in interest. If you are familiar with this situation, then loans for credit card debt consolidation are perfect for you.

By obtaining one of these loans, your total debt shall be put in one single place and you will get the benefit of a low rate of interest as well. Aside from this, the loan will facilitate in perking up your credit rating. This means that the second loan that you avail of will have a lower rate of interest as well. This eventually is of much help and it also supports you as you proceed ahead.

This is appropriate even if you are handling two or more credit cards, since the new rate of interest rate may become much lower than the previous offering. The internet plays a very important role in this condition since it can facilitate in finding the best rates for debt consolidation by providing you with detailed information as and when you need it.

After going through a few popular websites, you will be able enough to opt for the correct debt consolidation solution to suit your needs. However, frugality will still be important since you are required to pay off the monthly installment for loan consolidation.


Unsecured Debt Consolidation Loan

Debt consolidation loan is defined primarily as combining all the non-mortgage debts into one single loan. There are two different types of debt consolidation loans that include secured and unsecured.

Banks and financial organizations often require collateral or security in the form of immovable property in order to provide credit. This type of practice is often described as a secured loan. However, one can also avail an unsecured loan.

Unsecured loan can be explained primarily as obtaining a loan without putting property as collateral. Obtaining an unsecured debt consolidation loan is difficult because banks and most other financial institutions are often reluctant in providing loans that are not secured by a piece of property. However, there are certain lenders who are willing to offer an unsecured debt consolidation loan at higher interest rates.

Below are certain facts about unsecured debt consolidation.

#1 Unsecured debt consolidation loans are not offered to every customer who enters the bank. This privilege is available only to certain prime customers who are having an exceptionally good credit record with credit scores higher than 700.

#2 Different lenders have different credit score requirements in order to offer an unsecured debt consolidation loan. It is important to contact multiple lenders and obtain their quotes. A comparison chart indicating the credit score requirements and interest rates can be a useful guidance.

#3 Another important factor that determines the eligibility for an unsecured debt consolidation loan is employment history and income. Customer needs to be employed at one single location for a minimum period of 2-3 years and should earn a sizeable salary.

#4 An unsecured debt consolidation loan does not require property as security. As a result, these loans come at a higher interest rate so as to minimize the risk for banks. One needs to have an effective financial planning in order to solve financial problems using unsecured debt consolidation loan. This can include cutting short unnecessary expenditure at home, discarding all the credit cards once they are paid up.

Tips For Debt Consolidation On Mortgage Loans

Most times, people have more than one loan that they are repaying at a single point of time these loans may be anything ranging from high interest credit cards, loans or mortgages but to pay them off, the debtor tends to borrow from elsewhere and creating another debt in the bargain.

This results in the vicious circle continuing wherein one loan is taken to clear off a long pending existing loan. The most convenient and feasible solution to end this problem is to opt for debt consolidation.

Debt consolidation involves refinancing or restructuring the existing loans.
Through debt consolidation, all your different loans, including your personal loans, the high interest credit cards, as well as the consumer loans, can be clubbed together into one single consolidated loan which is offered on a low interest rate with convenient and affordable monthly repayments. However, those who are fortunate enough and own a personal property such as a home can also opt for a debt consolidation home equity loan.

Apart from including the payment for new loans, debt consolidation involves applying for the loan, getting the loan approved and sanctioned, estimating the paid debts and calculating the outstanding balance amount to be repaid. However, the borrower must be careful enough and refrain from incurring unnecessary expenses or borrowing additional loans in the future at least until the consolidated loan gets cleared; otherwise, nobody can save you from bankruptcy.

The best tip for debt consolidation is that the borrower must prepare a detailed debt worksheet to know how much more you need to borrow, and also the details of the interest rates that you are currently paying in each of your independent loans. You are the best person to judge your financial status. Therefore, glancing at the income worksheet and monthly budget gives you a fairly good idea of how much repayment you can afford to make comfortably every month. Applying online for a consolidation loan does not incur any fee or expenses. Therefore, you just have to take some time off, sit on your computer and browse through the internet to shop around for the best interest rates and repayment terms. Remember to maintain some degree of flexibility and margin in your budget while calculating the payments on consolidation loans because this will help in saving interest as well as in clearing off the loan faster.

Student Loan Debt Consolidation Guidelines

Fulfilling the educational expenses of a child is an aspect that is fast becoming a distant dream for many parents around the world due to rapidly escalating education costs. Many times, students have to depend on more than one type of educational loan so as to meet the tuition costs and other educational expenses.

Students who are unable to fulfill their monthly mortgage payments often end up with huge amount of debt by the time they graduate from the school. A convenient and effective solution for this problem is a student consolidation loan. A student consolidation loan is an efficient debt management strategy helping students to manage their debts by consolidating all the existing school loans into one single loan.

There are various advantages of student consolidation loans.

Student consolidation loans are low-interest rate loans available at flexible repayment terms. These loans are useful in improving the credit scores of a student. Moreover, the interest rate on these loans is federal income tax deductible. All the loans can be consolidated into one, thus requiring only one payment for the month. This reduces the burden of maintaining bills or keeping track of repayment for each expenditure. Students can save substantial amount of money through student consolidation loans.

In order to be eligible for a student consolidation loan, the student must have completed his course of study from the graduate school. Even students, who will be completing their course of study within 30 days of filing loan application, can apply for student loan consolidation. Another requirement is that the student should have a good credit or can apply with a good creditworthy cosigner.

In case of federal loans, students can consolidate federal Perkins loans, FFEL Stafford Loans, Direct Stafford Loans and even Graduate PLUS loans. Each one has a different eligibility criterion that needs to be fulfilled.

Qualified Debt For Debt Settlement

The debt settlement or debt negotiation process allows a debtor to get rid of his debts for the least possible amount of money in the shortest possible duration of time and restrains him from filing for bankruptcy.

Debts qualified for debt settlement program include credit card debts, medical bills, collection accounts, unsecured bank loans, personal loans, repossessions, and non-federal student loans.

However, student loans, car loans, mortgages, secured loans, utilities, IRS or tax debt, child support or other lawsuits are NOT qualified for the debt settlement program.

Debt settlement is an extremely useful method to go about repaying all those credit cards and personal loans. You will be debt free in about 12 to 36 months depending on how your debt is structured.

As a rule of the thumb, debt settlement allows the debtor to repay the current outstanding debt amount in an average period of 12 to 36 months. If the debtor does not opt for debt settlement, he might as well end up repaying those debts for the next 20 to 25 years.

Debt settlement can save a debtor thousands of dollars and years of payments, at an impressive zero percent rate. The debtor can clear off the debt faster and the repayment amount can be reduced by as much as 50 percent. The best thing about debt settlement is that it provides a viable solution to bankruptcy as a result of which the financial reins and controls of your business and life are again back into your own hands.

Negotiating Bad Debt Settlements

Debt settlement is the most viable option to become relieved of one’s debts instead of filing for bankruptcy. The debtor can either do it himself or hire a professional debt negotiator, or arbitrator to help through the debt negotiation process

As a part of the debt settlement process, the debt settlement company comes up with a monthly savings plan that suits the debtor’s budget, as a result of which he is in a position to pay back this settlement amount comfortably. The settlement amount is negotiated and fixed in consultation with the creditors. Once your monthly savings are enough to pay the settlement amount, the debtor can issue a check to finally settle his debt. The creditors must report the status change from unpaid or pending debt to that of cancelled debt to the IRS on Form 1099.

For successful debt negotiation, you need to first organize all of the existing debts and cut down on your expenditure by putting an end to irrational expenses. Maintain a file of all documents related to the debt along with relevant bills and correspondence. Set your priorities and work on building your debt repayment plan and strategy. Usually, experts suggest that debtors should repay the high interest loans earlier and then shift their focus to repayment of low interest loans.

The debtor must approach the creditors and enquire about the debt repayment plan that they offer. Later, the debtor must share and discuss the personal debt repayment plan that he has prepared for himself and use all his convincing skills to get the plan approved. Employ the suggested modifications to the debt repayment plan and follow up with the creditors to make the terms of your debt negotiation settlement more acceptable to both the parties.

Income Taxes On Debt Settlement

More and more numbers of people are opting for debt settlement as an option to eliminate their debts and avoid the necessity of filing for bankruptcy. The debt settlement process allows a debtor to speak to the creditor and negotiate a reduced pay-off balance (which is usually less than 50 percent).

Once the settlement amount is paid off, the remaining balance debt amount is simply forgiven.

Although enrollment into a debt settlement program does not get reflected on the credit report of an individual, the credit score will drop whenever the debtor defaults in payment. However, once all the existing debts are settled, the status of your debt settlement accounts gets changed from unsettled or unpaid status to settled or paid-up debt status.

But although debt settlement is a helpful and viable option, its greatest drawback is that the potential tax liabilities associated with the savings are very high. However, what one needs to realize is that the total amount of money that you end up paying to the creditor, plus the income tax liability, is far less than what you would have ended up paying if you had not opted for a debt settlement and had continued making the minimum monthly repayments of the total debt amount. When opting for debt settlement, the debtor must pay tax on the settlement amount. However, the IRS allows the first $600 of debt settlement to be exempt from taxes. Therefore, if the amount of debt settlement in your case is just $600, you will not need to pay any taxes at all.