debt

Debt Consolidation Loans – A Good Way To Bail You Out Of A Financial Mess

Debt Consolidation Loans – A Good Way To Bail You Out Of A Financial Mess

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It’s a materialistic society that we live in and people really have huge ambitions that can keep them on the edge. Easy availability of credit and seemingly-nominal interest rates can keep you taking on additional debt without a care in the world. After some time, you are faced with a mountain of credit card bills, and not-so-polite reminders from your lenders. Unless emergency action is taken, you will start receiving calls from debt collectors, and your assets may also be seized. If you cannot manage the situation on your own, then debt consolidation loans may be a very good idea to be explored.

What Is Debt Consolidation?

Rather than having numerous debts, the process of combining all of them into one larger debt is what debt consolidation is all about. The advantage of doing this is that you no longer need to manage multiple monthly bills, each with their high interest rates, and substantial monthly minimums. When you consolidate your debt, you are left with just one debt that requires just one monthly payment and one minimum due to meet. Taking a debt consolidation loan can ease the pressure off you by lowering your monthly payments due to extended period that may now be available for paying back the outstanding amount. There are also other advantages of this route that makes it an attractive proposition.

Lowers Interest Rates

Topically, interest rates of credit card debt tends to be very high.If you have multiple credit cards having different rates, you will gain substantially by availing yourself of a debt consolidation loan. This is because these loans invariably carry an interest rate that is significantly less than the average of credit card rates. This move will save you quite a lot of money making it easier to pay off your debt.

Improve Credit Score

The financial discipline that is imposed on you upon availing of a debt consolidation loan will enable you to manage your finances better. As long as you do not carry on with your earlier profligate ways and take on additional debt, you will be able to meet your monthly dues more comfortably than before. A clean track record of paying off your debts will assist in cleaning up your credit report. The improvement in your financial rating with lending institutions will help you in the future to take mortgage or other secured or unsecured loans.

Lesser Monthly Paperwork

With a debt consolidation process, you are left with only a single loan to be serviced. You will no longer be receiving innumerable credit card statements or bills from lenders that leave you confused and in despair. You are automatically in a better frame of mind to apply all your energies to be extra-productive and manage your finances better so that the existing debt can be paid off easily.

Save On Penalty Payments

With multiple debts you have to juggle around to make the monthly payments, and it is quite likely that you may forget to deposit the minimum payment due on some bills. This makes you liable to pay additional penalties that can be quite substantial if you count the number of such incidents over a year. With a debt consolidation loan that includes all the smaller debts, you are saved from making multiple minimum payments every month and thus attract no penalty payments.

Extended Time Frame

One of the advantages of availing of a debt consolidation loan is that the monthly payment due from you is calculated after taking into account your income sources and repayment capability. As a result of this, you will normally have an equated monthly instalment that you can afford with prudent financial management. This is possible as the debt now has to be settled over a longer period of time. However, you should bear in mind that longer the time frame, the larger is your total interest outgo. So, you should try and have an EMI that is the largest you can afford and that will clear off your debt in the shortest possible time.

How To Make A Debt Settlement With Your Creditor and Save Money

How To Make A Debt Settlement With Your Creditor and Save Money

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Debt settlement is a financial tool where the debtor and creditor agree on a reduced amount as full settlement of a remaining debt. Usually, a debt settlement request is made to a creditor if the debtor is at a point of filing for bankruptcy and wants to avoid it.

Debt settlement loans usually have a negative impact on the debtors credit score but they are often a better option to filing for bankruptcy, which would have a more detrimental outcome towards the debtor’s credit score than debt settlement.

In order to get a debt settlement accepted by a creditor and save some money in the process, you need to ensure that you do the following.

  1. Research and Gather Relevant Information

It is important that you first gather all the relevant information with regards to the debt you intend to settle including:

  • How much you have paid so far
  • What is the remaining balance
  • What is the remaining repayment period for the loan in question

You will also need to gather or calculate any information with regard to your financial position including:

  • Your discretionary income and debt
  • The value of your assets and other financial resources
  1. Convince your Creditor that  is the Best Option

After you have gathered your data, you should contact your creditor and convince them of 3 facts:

  1. That you are not able to make full payment for what you owe now or in the near future.
  2. That you don’t have enough income to pay a credit card debt if they choose to reorganize your debt in a chapter 13 bankruptcy arrangement.
  3. That you have nothing of value to your creditor, such as a house or a car, that can be used to quickly offset the debt.
  1. Negotiate with  your Credit Card Company

As you negotiate, you will need to ensure that you can agree on settling for a monthly payment that you can afford and still be able to pay for your basic household requirements.

Your creditor will try and gauge your capacity to pay more than you initially offer as a settlement, so make your best attempt to justify why it will not be in their interest that you pay more at that point.

In the event that debt settlement is a viable option, most astute creditors will seek to get a maximum of 70% and a minimum of 30% depending on how you present your situation based on the facts at hand.

In fact, if you can manage to pay more than the 70% your creditor will most likely not agree to debt settlement and will instead seek full payment or bankruptcy proceedings.

  1. Negotiate a Flexible Repayment Period but Pay Back the New Balance as Quickly as Possible

If you want to save money, you should try as much as possible to settle your debt within a year. The reason for this is that the interest rate on debt settlements is usually very steep, so if you pay monthly payments for an extended period of time you will be paying more than you need to.

If you manage to negotiate hard and with your facts right, you stand to save some money in your debt settlement.