Offering Free Debt Consolidation Consultations

In our troubled economy there are many people struggling with debt. When this happens it can be very stressful and confusing. How do you get back on track when you are overwhelmed by financial difficulties? There are a number of options available to help get you going in the right direction and ultimately to become debt free.

What Is Debt Consolidation?

The most common type of debt consolidation is accomplished by taking out a loan to pay off all of your existing debts. This reduces the amount of payments that you make each month. If you have a good credit history the interest rate on the loan will most likely be lower than what you are currently paying, saving you money and reducing the amount of your monthly payment.

If you have poor credit you may have some difficulty getting a loan. If you are able to secure a loan it may have a higher interest rate than what you are currently paying. This can result in paying back a higher total amount but may offer a lower monthly payment than you are currently making. This will ease the strain on your budget.

The positive aspect of debt consolidation is that it allows you to pay off your debts much more quickly than with most other methods of debt relief.

Is Debt Consolidation Right For You?

When you get into a situation where your debt is causing a serious hardship, debt consolidation just might be right for you. Some of the warning signs that could indicate you are in trouble include:

• You are only able to make the minimum monthly payments or are skipping payments
• You are using credit card cash advances to pay other bills
• You pay off the balance on one credit card using another credit card
• You are behind on your payments and receiving collection calls or letters

If you answered yes to one or more of these scenarios, then debt consolidation may be your best option.

Once you have made the decision to consolidate your debts you will have a number of options to choose from. There is a vast amount of information available both online and through non-profit credit counseling agencies to research the topic if you choose to take a self directed approach.

If you have questions and are not sure where to turn, seeking the advice of a professional debt counselor can help you to make an informed decision. You don’t have to go it alone! There are reputable debt counselors waiting to assist you that do not charge a consultation fee. They can assist you by explaining the different options available and can help you decide which option is best for your situation. If you do seek professional help, be sure to research the counseling firm’s credentials to be sure they are legitimate. You will also want to know if they have a successful track record with other clients in situations similar to yours. Agencies such as the Better Business Bureau can advise you if a company has had complaints filed against them and if so, if they have been resolved successfully.

As with any major decision, be sure you understand the risks and requirements involved!

Although debt consolidation works well for many, in some cases you might be better off with a debt settlement, also called a debt negotiation. This will reduce the total amount you owe and will get you out of debt in a shorter time period, usually 2 to 3 years, but can also have a negative impact on your credit score.

Do I Qualify For Debt Consolidation?

Consolidating debts with a debt consolidation loan is a good option to preserve your credit rating but is one of the more difficult to obtain. In order to pay off all of your debt you will need to take out a large enough loan to cover the total amount. If you own your home and have an adequate amount of equity built up, you may be eligible for a cash-out refinance. This type of refinance allows you to borrow more than the outstanding balance on your home based on the equity you have built up. You can then use the cash back to pay off your credit card and other consumer debts. A positive aspect of the cash-out refinance is that the interest you pay on the loan is deductible on your income tax in most cases and your interest rate will most likely be much lower than what you were paying on your credit cards and consumer debt.

If you do not own your home but have excellent credit and adequate income to meet the qualification guidelines, you might be able to take out an unsecured consolidation loan.

Lenders will look at a number of factors when making their decision. These include:

• Debt to income ratio – How much debt you have in relation to your take home income
• Credit history – Your credit score and payment history
• Monthly income – You must meet minimum income guidelines to qualify for a loan

If you meet all of the guidelines, then you will stand a good chance of qualifying for a debt consolidation loan.

Your Debt Options

While debt consolidation loans are one of the best options for getting back in control of your finances, they are not the only option. If you are really overwhelmed and unable to meet your financial obligations there are several other methods of debt relief that may be a better choice for your circumstances. These include:

• Debt Settlement
• Credit Counseling
• Credit Card Balance Transfers
• Bankruptcy

Debt Settlement

Debt settlement can be handled either on your own or through a debt settlement firm. If you choose to tackle this on your own, you will need to contact each of your creditors and explain your circumstances. Let them know you would like to settle your balances. They may be willing to forgive a portion of your total balance, sometimes by as much as 50 percent. This in turn will reduce your monthly payments. Remember, you will still have to make payments to each of your creditors if you choose this method.

If you are unsure how to approach your creditors or do not have the time to do so, then you will want to seek the help of a qualified debt settlement firm. They will handle the negotiations for you and once a settlement is reached with all of your creditors, you make just one payment per month to the debt settlement firm and they pay your creditors for you. Your monthly payment will most likely be lower than the combined payments you were making and they can get your balances reduced for you by anywhere from 15% to as much as 70% along with getting your interest rates reduced. There are fees associated with this type of service.

Credit Counseling

Another option you may want to consider is credit counseling. In this scenario you will work with a credit counseling agency and they will contact your creditors to propose a lower interest rate. If your creditors accept the proposal, you will then work out a payment plan with the credit counseling firm that you can afford. Typically it will take around 5 years to pay off your debts, depending on how much you owe.

During the program your credit report will show that you are participating in credit counseling and may make it difficult to secure credit until you have successfully completed the program. Upon successful completion there should be little damage to your credit score. Be aware that not all creditors will accept a proposal from a credit counseling agency so be sure you are kept updated on their results. If a creditor does not accept the proposal you will still be responsible to make sure they receive payment. Credit counseling firms charge a fee for their services.

Credit Card Balance Transfers

If you have a good credit and payment history but are carrying balances on several credit cards with high interest rates, a balance transfer may be a good option for you. Though not as common as in the past, some credit card issuers still offer introductory rates for balance transfers with very low to 0% interest for several months. With this option there will be no damage to your credit score provided that you are current on all debts. It can also save you a considerable amount in interest charges.

Before making a balance transfer be sure to read the terms of the card offer to see what the interest rate will be after the introductory period. Also be sure to check for any fees associated with the balance transfer. If the post-introductory interest rate is higher than what you are currently paying, then you should look for another offer. After you have transferred your high interest balances do not close all of the accounts you just paid off at once as this can damage your credit score. Another thing to avoid during your search is applying for multiple credit cards in a short time as this will lower your credit score as well.

Bankruptcy

This option should be viewed as a last resort. There are some situations that require filing for bankruptcy but when possible other alternatives should be pursued.

If bankruptcy becomes necessary, there are several types available and you will need to determine which one best fits your circumstances. The most common are:

Chapter 7 – This is called a liquidation bankruptcy. A large portion of your property is sold off to repay as much of your debt as possible leaving you your personal possessions, such as clothing and other basic necessities and enough property to start over. If you have little or no property, your case will be considered a “no asset” case. Once all eligible assets have been liquidated, you are no longer responsible for any debts that have been discharged in the bankruptcy. There are a few exceptions to what can be discharged, including taxes owed, alimony and child support or federal student loans. If you have a substantial income, you may not qualify for this type of bankruptcy. There are other guidelines when filing for a Chapter 7 bankruptcy and very few people qualify.

There are also reorganization bankruptcy filings, such as Chapter 13. With this type of filing, you will report to bankruptcy court and your income and assets will be reviewed. Based on the findings the court will define a payment plan that you will follow to repay your debts either in full or in part. In some circumstances, certain debts will be discharged meaning you will not have to pay those particular debts. Chapter 13 is strictly for individuals.

Chapter 11 bankruptcy is similar to Chapter 13 but is for either businesses or individuals with assets above the amount allowed in a Chapter 13 filing. It is more complex than a Chapter 13 but offers greater flexibility. Depending on your circumstances and the amount of debt and assets you have, this might be a better option. The reorganization bankruptcy process typically takes between 3 and 5 years to complete.

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