Your Ultimate Guide To Debt Consolidation VERIFIED
Finding the right option to resolve your debt can be daunting. There is so much information (and in some cases misinformation) in the public regarding various ways to consolidate your debts. It can be hard to decipher what is best for your unique set of circumstances.
Your Ultimate Guide to Debt Consolidation
It is best to evaluate and understand ALL of your available options before making a decision. This article will breakdown the four main types of debt resolution options and compare based on the following categories/themes:
All four of the options listed below have the same premise: take multiple smaller payments (each with their own due date, interest rate and terms) and roll them into a single monthly payment with more favorable and singular terms. The goal: debt reduction and less stress and headaches trying to pay bills each month. While this goal is the same across all options, the methods and results vary significantly. Read below to determine which option might be best for your unique circumstances.
One of the most beneficial aspects of the Chapter 13 is the ability to reduce and legally discharge a portion, if not the majority, of your unsecured debt obligations. This includes credit cards balances, medical bills, old utility bills, personal loan, loan deficiency debt, etc. You are only required to pay back what you can afford based on your income, expenses and budget. Whatever is not paid through the course of the Chapter 13 program is then legally eliminated or discharged at the completion of the plan.
Pros: A DMP provides a non-bankruptcy, non-loan option to reduce your interest rates and set up a repayment plan for unsecured debts. It is a viable option if the main concern is unsecured debt obligations and there is discretionary money in the budget to focus on repayment of principal debt.
Cons: The DMP only deals with and consolidates unsecured debt obligations. While in the DMP, you cannot access new credit or take out other loans. The DMP does not provide legal protection from creditor actions; it is a voluntary plan for your creditors. As such, one creditor opting not to participate can affect the entire process as the creditor may instead aggressively pursue collection including a lawsuit and garnishment. If you miss or are late on a payment, it could disrupt the repayment plan and end favorable interest rates.
A Debt Management Program or DMP is a structured debt payment program set up by a 3rd party company or credit counseling agency (CCA). The CCA works on your behalf with creditors to structure a repayment plan that works for both parties. In most cases, the agency will lower interest rates, eliminate late fees and consolidate everything into one monthly payment. Typically, they do not lower the principal amount owed.
As a part of the process, the 3rd party agency will access a budget, gather your list of creditors and begin taking payments. They withhold these payments to your creditors until terms have been negotiated. A DMP is used to consolidate unsecured debt obligations and does not assist with secured debts, student loans or tax obligations. Once the plan is activated, it is recommended that you call each creditors included in the DMP to verify that they have accepted the terms of the plan as proposed.
The caveat here is that your credit score is primary used to obtain future credit with favorable terms. Since the goal is to reduce debt and establish repayment terms, you credit score will likely bounce back during the course of the repayment plan. Since you are prohibited from opening new credit while in the DMP, the short term dip in your credit score should not negatively impact your or be a long term factor.
Pros: With the right terms, a credit card debt consolidation loan (CCDCL) allows you to consolidate to a lower interest rate and pay down principal debt. With fewer bills to pay, a CCDCL can simplify your budget and remove the stress of monthly bill-paying.
Once you know the length and terms of the favorable rate, it is imperative to create a manageable and realistic budget plan to pay down the debt before that rate expires. Interest rates can widely vary: 6% - 25% depending on your credit score. It is best to avoid new purchases on transferred balance loan as those purchases are usually charged at a higher interest rate.
Impact on Credit: If you are able to pay down principal debt through a lower interest rate, your credit score should improve. If you open up a new card to consolidate but keep the original card open, you will decrease your credit utilization (as you will have more credit available to you overall) and this action should also boost your credit score.
Debt Reduction, Resolution Tools and Terms: Your credit score determines your interest rate or APR for a consolidation loan. Here are some recent estimates from a Nerdwallet lender survey:
It is essential to find lasting debt resolution. The goal should be to pay DOWN debt, not just consolidate it. When you do this, you will improve your credit score by improving your debt-to-income ratio as well as presumably creating a positive payment history by your paying bills on time. These two factors alone account for 65% of your credit score!Find the option that works best for your unique circumstances. Creating a budget, sticking to it and starting a savings plan is next step to finding lasting financial freedom. Working to improve your credit score will allow you to qualify for better loan opportunities, lower interest rates and more favorable terms in the future.
Acclaim Legal Services is a Michigan based law firm founded in 2003. They have an A+ rating with the BBB and an average 5-star rating with Google. They provide comprehensive debt resolution services including Chapter 13 bankruptcy (debt consolidation), Chapter 7 bankruptcy (debt elimination) and non-bankruptcy debt settlement options. They have 6 office locations throughout Michigan.
Before you take out a debt consolidation loan, figure out how much you can afford to pay each month. This will help you decide what loan and repayment plan to go with. Look carefully at your budget, and see if there are any areas you can cut back on.
That will help free up some money so you can stay on top of your monthly payments on your new loan. You might want to find ways to rake in extra cash to put toward your debt repayment. This might be picking up extra hours on the job, doing side hustles such as ride sharing, tutoring, or babysitting.
A debt management plan (or DMP) is a slightly different take on the concept of consolidation. Rather than consolidating the debt, you're essentially consolidating the debt payments instead. In other words, you aren't paying off a collection of old debts and replacing them with a new one; you're making a single, consolidated payment that distributed to your creditors each month.
No matter which debt consolidation method you choose, you should know the risks involved. Understand the repercussions of not staying on top of payments. Debt consolidation can help simplify your debt repayments and save you money. But not being able to keep up with your repayment plan could ultimately put you in deeper financial hotwater.
The other 60 percent have a staggering amount of credit card debt. There are tons of reasons why people owe so much in credit card debt. We will touch on some of those reasons as you continue reading. We are also going to talk about your options when you find yourself drowning in credit card debt, including credit card refinancing. Keep reading to find out everything you need to know about credit card refinancing.
Credit card refinancing is when you choose to take your debt from one or many credit cards and transfer it to another credit card. The overall goal is to save money on the interest you are paying on your current credit card debt. Typically, when you transfer money from one credit card to another, the new card gives you 0 percent interest on the transferred balance. Credit card refinancing can save you money in the long run. It helps decrease the amount of money you have to pay each month. If the interest does not build, you have an easier time of paying off your credit card debt.
Another way to refinance your credit cards is to get a refinancing loan. This is an actual personal loan that you use to refinance your debt. As with anything else, there are positives and negatives to obtaining a personal loan to consolidate debt. Some of these refinance options can be handled online with online applications. Today, it is much easier to file for credit cards and loans online with online card shops.
The bottom line is not paying off your full balance causes you to accrue interest and you pay more money. Over time, this amount adds up and may cause you to have such a high amount of debt, you may consider credit card refinancing.
The higher your credit card balance, the more credit you are using and this is a negative mark for your credit. Also, the more credit you use the higher your debt to income ratio becomes which also negatively impacts your credit. Carrying a high amount of credit card debt may also put you in a position where you may need to consider credit card refinancing.
This is can lead you down a dangerous path of quickly getting over your head with credit card debt. If you begin to feel like your credit card debt is out of control, you may want to consider credit card refinancing. You have to be aware of your own spending habits and will power when it comes to credit cards. There is no one to police you, but yourself.
When it comes to credit card debt it is especially important that you remember even though you are not paying money upfront, you still have to pay. If you know that you may not have the best control over your impulse to shop if you have credit cards, you might want to think of alternatives. You can open a savings account and put money in there for extra things you might like to have. Some people call this a rainy day fund. It could be for vacation, emergencies, or just an occasional shopping spree. 041b061a72