The ultimate Guide to Debt Consolidation
Table of Contents
2 Important Facts About Hiring a Debt Relief Company
Watch The Fastest Way to Get Out of Debt
Understanding Debt Consolidation
What is Debt Consolidation?
Debt consolidation is the process that is gone through in order to pay off non-secured loans and remaining credit card balances. Debt consolidation for bad credit combines several small debts and monthly payments into one larger debt and payment. Of course this may appear to be an unwise choice, but it is not.
Through debt consolidation, you can obtain a low interest rate along with low monthly payments. This will help you to get on your feet and not burden you with the high interest rates provided by each and every credit card that you have a balance on. Read on in order to learn more information on debt consolidation for bad credit.
Debt Consolidation Services For Bad Credit
Debt consolidation for bad credit, when done correctly, can consolidate your debts quickly. This will give you the peace of mind in knowing that you are on the road to being completely debt free. Debt consolidation provides you with one monthly payment.
This payment is lower than all of your separate smaller debt payments combined. Why is that? It is simply because separately, each one of your credit cards tacks on an interest rate. The combination of these interest rates is astronomical compared to what you would face if all of your debts were compiled onto one card with a lesser interest rate.
If you pay the minimum on each of your cards separately, then you can plan on remaining in debt for years. With the amount of the interest rate, added onto the principal balance each month, it will take you an extensively long time to pay off each one separately.
The amount of debt that you are facing now could double, even triple over the course of the next few years, especially if you are using each of your credit cards on a regular basis.
How to Find a Debt Consolidation Service
This suggests the importance of debt consolidation. Debt consolidation for bad credit is a very simple and easy process. The initial step to debt consolidation is contacting lenders and informing them of your interest in a debt consolidation loan.
Once you have filled out a loan application and provided a list of all of your debts, your tax returns, and two recent check stubs, you will then be asked basic questions. These basic questions will be about your lifestyle, credit history, and how you managed to acquire debt.
Through evaluating this information, the lenders will provide you with an offer and inform you of the interest rate along with the repayment term for the loan. The lender with the lowest interest rate and monthly payments is the one that you want to go with.
Watch out for loans with “points.” Points are a one time payment that you make to the lender. Specifically, each point is one percent of the loan amount. Make an attempt to find a loan that does not have any points if you are able to.
Avoid Common Mistakes when Hiring a Debt Consolidation Company
It is extremely important that when you are consolidating your debt through a debt consolidation loan, that you stay away from the common mistakes that leave other people in even more trouble than before. Take a look at the monthly payment that they would like for you to make.
Is this one that you can actually afford? Also, make sure that you have found a solution for the problem that led you into debt. If you revert back to your previous ways, you can count on being in debt for an even longer time.
Also, make sure that you consolidate all of your debts, not just a couple. Debt consolidation for bad credit is a problem that can be fixed, only if the correct measures are taken. Good luck on your debt consolidation for bad credit!
If there’s one thing debtors want, it’s debt relief. A potential solution to a harrowing problem is the essence of hope. But hope alone does not get debtors out of the financial hole they dug themselves in—but, professional debt consolidation and counseling services can help debtors make headway, and eventually hope out of that proverbial hole.
Low or no-cost debt consolidation and/or counseling services abound to lessen the strain and expense of insurmountable debt. However, questions abound as to their methods and non-profit status. The answers to these questions inevitably rest in the mutual beneficial situation created by credit card companies. To wit, in order to recoup some of the outstanding debt of those unable to repay loans and in order to shade themselves with the tax write-offs of donations, credit card companies formed not-for-profit debt consolidation centers and credit counseling services. While technically independent of credit card companies, these consolidation centers provide shoals of benefits for those looking to spring back to financial health without hurting their credit report terribly.
Obviously, to avoid outstanding debt, consumers can shelter themselves by filing for bankruptcy (although all remaining possessions are remanded to the court for proper adjudication). However, filing for bankruptcy irreparably stains the petitioner’s credit report for ten years.
Not to mention the court costs and fees associated with such a procedure. Consumers of a more conservative nature seek debt relief in the arms of the aforementioned debt consolidation centers which accrue the totality of debt into manageable monthly payments by sawing off portions (if not all) of interest owed.
In some cases, debt consolidation centers can negotiate the elimination of interest and parts of the principal owed to various creditors. And, rather than tentatively doling out paychecks to myriads of different creditors, a debt relief center will cull and organize your payments into one, monthly sum—from which various debtors are then paid.
As a side effect of trimming interest portions and coalescing debt into manageable monthly obligations, consumers are additionally granted an avenue to restore good standing with creditors by fulfilling their new, improved monthly obligations. In other words, consolidation services provided by debt relief agencies not only eliminate portions of payments, they
Another, more action intensive option proffered by debt relief specialists is a one-time, lump sum settlement. Whittling debts by as much as half (and in some rare cases 75%), debt consolidation centers negotiate a one-time flat fee to eliminate a debtors obligations. But, unlike the debt managing strategies detailed above, a lump sum arrangement does not boost your credit rating—in fact, while it absolves a debtor from financial obligations, flat fee settlements cast a negative glow upon your credit history. However, sometimes debtors have more tangible considerations to weigh other than credit ratings and records, and in this respect, a lump sum payment plan works wonders.
To determine which type of debt relief best befits your current needs, bankruptcy (debt consolidation agencies generally dissuade customers from choosing bankruptcy, so if you decide upon this route, contact either a reputable lawyer or bankruptcy assistant), debt consolidation or flat rate settlement, examine your current priorities.
If debt relief is unequivocally an immediate and irredeemable situation, perhaps bankruptcy and lump sum options win out. But, for those debtors willing to trade patience for future credit opportunities, debt consolidation is most likely the prudent choice. And prudent choices are, ultimately, how consumers spell debt relief.
How to Get out of Debt
You can no longer make ends meet. The bill collectors are making your phone ring off the hook. You sit with your checkbook and a stack of invoices and a calculator for hours every month but you just can’t make it work. If debt has or is threatening to take over your life, it may be time to confront the problem, look for solutions, and begin your journey to get out of debt.
If you are in debt and you have reached the point where you feel that your debt is out of your control and something must be done, you have a number of options. Several different techniques for managing and reducing debt exist.
If you would like to make it easier to pay every month and try to reduce your monthly payment, you may want to try debt consolidation. If you would rather try to reduce the total amount of your principal debt, debt negotiation or debt settlement might be the best method for you. If you are in the extreme position of having absolutely no way to pay off any more debt, you may want to consider filing bankruptcy. These and other methods can help you begin to get out of debt.
In most cases, it is extremely beneficial for anyone who wants to get out of debt to seek help from a professional financial planner or debt counselor. These workers have experience in the industry and knowledge of what options are available and can help you make the best choice for your individual situation and circumstances.
A large amount of consumer debt relief agencies and organizations exist, and finding one in your area can be as simple as searching with a phone book or the internet. You may want to research the agency’s background just to make sure they are experienced and legitimate, and then you can call and make an appointment to meet with a debt counselor.
Debt counselors and agencies are regulated in each state according to that state’s laws and government agencies. Several national organizations also exist, including the Council on Accreditation, which accredits these and other types of social service agencies; the National Foundation for Credit Counseling, which requires that all counselors employed by its member agencies be certified through its programs; and the Association for Financial Counseling and Planning Education with certifies financial counselors with its Accredited Financial Counselor exams. Any meetings you have with a financial counselor should be completely confidential- your circumstances and plans to get out of debt will be between you, your counselor, and the people or agencies you owe money to.
Like many people, you may be concerned about your spending habits and want to try to avoid being in any more debt than is necessary and make sure that you are financially fit. Some important things should be kept in mind at any stage of your debt and repayment journey to help you understand and better plan your use of money.
First and foremost, it’s important to understand your spending in terms of how much you are spending on what things, and which things are actually necessary. Repaying debt sensibly by drawing up a specific plan and sticking to it with or without professional help is another useful financial goal. Once your debt is at a manageable level, or before it becomes unmanageable, it’s a good idea to get financially healthy by learning saving techniques, setting realistic goals, researching credit card companies to avoid being taken advantage of, knowing your credit rating, and thinking about other ways to be frugal.
With a little bit of effort, and in many cases a little bit of professional help, even the most debt-laden people with the fewest available monetary resources can begin to get out of debt and develop financial habits to stay out of debt in the future.
Are you a good candidate for debt negotiation?
Finding yourself in debt can be a very harrowing experience. Should such a fate befall you, it maybe time to pay up—at a reduced price. Debt negotiation is becoming a very popular choice for those with few options. Here’s how you can determine if you’re a good candidate for debt negotiation.
Are creditors “hassling” you?
I know creditors sometimes call at ridiculous hours during the day and won’t get off your back. Keep in mind; it’s their job to collect a debt from this specific company. If you cannot make it through the day without creditors informing you about delinquent payments, then you may be eligible for such a program.
Do you know the difference between debt negotiation and debt consolidation?
This is very important. Debt consolidation is the act of taking out an entirely different loan in order to streamline various bills and debt. Debt negotiation is entirely different.
Sometimes called debt settlement, it simply means that you will begin negotiations with your creditors in order to establish a payment that will satisfy both sides. The total amount agreed upon is usually lower than the initial bill(s), maybe 50%-60% of the original debt.
How’s your credit?
If you can’t even buy a pencil sharpener on credit, you may need some outside help. Credit is very vital to your present and future. Think about it. How can you buy a home without a loan? All lenders run credit checks. Keep that in mind when you think of putting a frivolous or trendy item on your credit card.
How close are you to bankruptcy?
Debt negotiation can be a very confusing process and should only be capitalized upon if it is the last resort. Many experts warn that absolutely no one should consider this service unless he or she is near bankruptcy. If you’re not on the winds of bankruptcy, then maybe consider debt consolidation.
Are you ready to go toe to toe with a negotiator?
If you’re in your low to mid 20s, chances are you have little experience with debt, let alone the process of debt negotiation. Debt Negotiators are well aware of novices and may try to double talk newbies. If you feel like you’re swimming with a shark, maybe you need some back up. Some bring lawyers and they act as your “mouthpiece.” However, these lawyers will cost and arm and a leg. Maybe this isn’t the best move for someone near bankruptcy. Read up on everything related to debt negotiation so you won’t be duped. You should then be your own “mouthpiece.”
Can you make the payment?
It is very important that before you begin negotiations that you have at least some money in the bank. If you fail to make the payment, your credit rating can be destroyed—more so. Remember, there is no payment plan; this is a lump sum agreement, so there will not be any monthly installments.
Please remember to investigate any services dealing with your credit past, present, or future. If you fall prey to a company with shady dealings, it may hurt your credit for a lifetime. The Federal Trade Commission put out a report about fraudulent debt negotiation companies that bilked customers out of millions of dollars. So, be on the lookout. As always, check with the Better Business Bureau to see if they’re compliant and legitimate.
Beginner's Guide Credit Card Debt Reduction
One of the biggest sources of debt is due to overspending through the use of credit cards. Consumers should carefully consider the role credit cards play in their daily living and purchases and should take steps towards credit card debt reduction.
Obtaining a credit card is a big deal. If you do not have a credit card and are considering getting one, you should think twice about it. If you have gone for a long time without one, consider if you really need one now. If you already have credit cards, you might want to consider getting rid of them. If that is not an option, you should consolidate them or at least establish strict rules for achieving some sort of credit card reduction.
How Credit Cards Can Deceive You: Credit cards do not work for you, they work against you buy luring you into a false sense of security by allowing you to assume you have more money than you actually do. Even though it seems like you are not being charged, purchasing an item on credit does not mean that you won’t have to pay for it.
Collection agencies will eventually demand payment and, due to interest rates, you will most likely end up paying more money for an item than what it originally cost. Also, you do not receive bills for a long period of time in between purchases.
Reducing Credit Debt Takes Time & Tracking
Unless you are keeping careful track of your credit purchases, it is very easy to forget purchases you might have made. One way to achieve credit card debt reduction is to keep a ledger of your charges. Do not wait until a later time to enter purchases into your book. Carry it with you and record in detail where every purchase was made, what was bought and the exact amount that was charged.
Total the amount of purchases from time to time throughout the month. This will help you realize how much money you are charging per week instead of waiting for a monthly statement. Also, if you’ve set a credit card spending limitation, you will easily be able to tell when you’ve reached your spending limit and you will not be surprised by excessive bills at the end of the month.
Overcoming Your Debt: Credit card debt reduction requires taking accountability for your overspending and committing yourself to acquiring and maintaining the proper spending habits necessary to achieving a stable financial record.
As mentioned before, a large part of this involves closely monitoring your budget by making weekly, monthly and yearly financial plans and recording and evaluating all of your expenditures. It is also important to remember that credit card debt reduction is an ongoing process and does never stops, even if you’ve paid off your credit card debt.
Using a credit card means that you will constantly be incurring additional debt and it is important to stay committed and consistent with your personal accounting system. One excessive purchase can easily add to another and so on and so forth. Keeping close watch of your monthly, weekly and even daily spending will help you stay on a debt-free path.
If you ever consider letting your credit card debt accrue, you should imagine the worst case scenario. Unforeseen emergencies may present themselves and if you have a lot of credit card debt, you may not be able to handle them in the way that you need to.
Emergencies such as medical needs, loss or damage of property due to theft, arson or natural disaster or a drop in personal stock could be disastrous if you are not financially prepared and relatively debt free.
What is Debt Elimination Services?
Debt elimination services can get you the debt relief that you seek and need to get a handle on things. There are different ways to go about getting this relief. Choose the way that will be most helpful to you.
Debt elimination services, which are widely available, exist to help the average consumer like you get out of debt. They focus mainly on reducing unsecured debt and its interest. Usually this is done in the form of a consolidation plan in which the debt elimination group pays the consumer’s (your) bills, and the consumer pays the debt elimination group for doing so.
Since the debt elimination service has by this point negotiated with your creditors to reduce your bills and interest rates, your total amount of debt is smaller, and the monthly payment they establish with you will be manageable. Debt elimination organizations are often non-profit, or have a very small profit margin per customer helped.
By this point you may be thinking, “What’s the catch? Why are debt elimination organizations able to negotiate down credit card bills if I can’t do it myself?” Here’s the shocker: debt elimination groups often are working for the credit card companies.
It is in the interest of your credit card company to prevent you from having to file bankruptcy. They realize that collecting some payment is better than collecting none, and therefore are willing to lower your rates, even lower your bills, in order to receive some payment from you.
It’s basically a win-win situation for you. You stay out of bankruptcy, you get out of debt faster, and you get to pay less to the credit card companies than you would otherwise have had to. Another perk to signing up with debt elimination services: irritating phone calls and letters from creditors stop immediately. You don’t even have to contact the creditors, the debt elimination firm does it all for you. As you can see, the hassle that comes with this form of debt elimination is virtually non-existent and the benefits are great.
Debt Management Counseling
Some debt elimination services may also provide you with debt management counseling, free of charge or otherwise. Although some consumers have been forced into debt through job loss or heavy medical bills rather than through irresponsible spending, this is not true for the majority. And what is the point of getting out of debt if one does not get rid of the habits that landed one in debt in the first place? The debt will just come back.
One more point about debt elimination services: they will improve your credit. Although there is a myth going around that signing up for debt elimination will somehow harm your credit, this is not true. Anyone who looks at your credit record will view the fact that you are trying to get out of debt as an indicator of financial responsibility on your part. And thinking logically, how can reduction or elimination of debt, particularly unsecured debt, be anything but a good thing for your credit?
how to eliminate credit card debt?
So if your debt situation is serious, you would be well advised to consider debt elimination services. They are usually quite friendly and provide excellent customer service. They’re usually preferable to getting a consolidation loan; since a consolidation loan does not actually reduce the amount of debt you have to pay in the end, and will not prevent your creditors from contacting you. And debt elimination is certainly preferable to the other option: bankruptcy. The sooner you contact a debt elimination service, the sooner you can begin to see your debt shrinking rather than continuing to grow.
How to Stay Debt Free?
Since one of the biggest sources of debt is due to overspending through the use of credit cards, you should carefully consider the role credit cards play in your daily living habits and purchases.
If you do not have a credit card and are considering getting one, you should think twice about it. If you have gone for a long time without one, consider if you really need one now. If you already have credit cards, you might want to consider getting rid of them.
If that is not an option, you could consolidate them or at least establish strict rules for yourself on how you will use them. Once you have been debt free for a while, you can begin to introduce some aspects of debt back into your finances such as limited credit card spending and layaway purchases. But remember, it is a slippery slope back to being in debt.
One excessive purchase can easily add to another and so on and so forth. Keeping close watch of your monthly, weekly and even daily spending will help you stay on a debt-free path.
What is a Debt Settlement
Debt problems are a huge burden to carry. They can stack up and up until you feel there is nothing physically possible that can be done to escape the constant phone calls from creditors. You may be considering bankruptcy or debt consolidation as some major considerations. In most cases, debt settlement programs allow you to pay only a fraction of what you owe in order to help you resolve your debt within a short amount of time.
Debt Consolidation versus Debt Settlement
Debt relief can come in many different forms. Debt settlement is different than debt consolidation because it usually involves having a debt negotiator that works on your behalf to determine a significant reduction in your overall debt. If this program is successful for your debt relief, it will result in you owing only a fraction of your original debt and helps you pay off your debt sooner.
The length of an average debt settlement program is dependent on how much your original debt is and your ability to make your regular payments. Typically, many settlement programs anticipate that it will take anywhere from one to two years before you have paid off your debt.
These programs are designed to reduce your debt and help you so that you do not have to sink into bankruptcy. If you have never had issues with your credit and have not really made late payments, then entering a settlement program may adversely affect your rating.
Getting accepted to debt settlement programs
There are few requirements to be accepted for settlement programs. The only requirement for consideration for many settlement programs is that you have at least ten thousand dollars of unsecured debt. Another aspect that is usually important in consideration is that you are gainfully employed so that they are sure you will be able to make your payments.
You also have to be committed to paying off your debt. Speaking with a debt counselor is the first step to determining if you are a good candidate for debt settlement.
Debt Settlement Costs
The price of enrollment into a settlement program varies greatly. Some of the factors that influence the cost of the programs are based on your current situation and the efforts that you will have to make in order to get out of your debt.
Most settlement programs charge a fee for their service in addition to the payments you have to make for debt relief. The long-term advantage, however, is worth it because it means that they will help you become debt free, which is the overall goal. Most programs provide free consultations where you can have your questions answered about program fees.
A successful settlement program has the ability to significantly reduce the amount of money that you owe your creditors, which is why it is a solid form of debt relief. All cases vary on your particular situation and your previous debt, but many settlements can result in a twenty-five to fifty percent reduction in the total amount of money owed to the creditor.
Secured versus unsecured debt
Unsecured debt is from a contract that you entered into with a creditor that allows you to buy items on a credit base due to your agreement that you will repay the creditor. The most common form of this is a credit card.
A secured debt is when the creditor retains the right to the property used to “secure” the loan until you pay it back. Usually, this is done with a house or car loan. This way if you fail to repay the loan the bank can repossess the house or car. Debt settlement is one form of debt relief that can help you get out of debt.