Debt Consolidation Tips Before You Start

A debt consolidation loan is a loan that pays off all your existing debts – effectively ‘consolidating’ them into one, meaning you will make payments to one creditor instead of many.

It’s possible to reduce your monthly payments by spreading them out over a longer period than your original debts, and you may be able to get a lower interest rate than the combined APR of your existing debts, saving you money.

Debt consolidation: things to consider

It’s still a debt
Your debt consolidation loan will remain a debt until it’s fully repaid – and you will have to be certain that you can keep up on your new repayments.

Consider the reason you struggled to make your original payments: if you fell behind because you have a fluctuating income, for example, then a debt consolidation loan may not be the best solution for your circumstances. But if you are sure you will be able to repay your debts at a slower pace, then a debt consolidation loan could help.

Equally, there are some people who are managing their existing payments just fine, but either want to simplify their finances, or would prefer to make lower payments in order to free up extra cash each month.

You’ll still have to repay your full debts
It may sound a little obvious, but a debt consolidation loan has to be repaid in full. That’s fine for a lot of people, but if the problem is that your debts are simply too big to repay within a realistic timeframe, then a debt consolidation loan is not a good option.

Another debt solution, like an IVA (Individual Voluntary Arrangement), may be more appropriate. Speak to a professional debt adviser if you are unsure.

You could end up paying more overall
Even if your debt consolidation loan’s interest rate is lower than the combined APR, you could end up paying more interest if you spread out your repayments.

This is simply because you will be paying interest for longer – your APR is the total interest you will pay in a year, so if you decide to repay your debts for two years longer than your original arrangements, you will pay an additional two years’ interest.

Your debt advice specialist should be able to help you calculate whether or not your new arrangement will save you money or not. Some people don’t mind paying a little more interest – after all, you are still likely to benefit from lower monthly payments – but it’s something you should consider before deciding on a debt consolidation loan.

Credit Card Debt Settlement

Unfortunately, I have had a previous experience with a credit card debt settlement company and I have some insights you may be interested in. I would firstly like to take a minute to describe how the credit card debt settlement process works. Please be advised that these companies like to sugar coat everything- so be sure to write down a list of questions, and get a thorough grasp of what you are getting into.

The system requires you to go into default on your unsecured credit card bills (that means you do not pay your bills). The credit card debt settlement company will require you to pay them either a flat fee or a fee determined by a percentage of how much debt you have. You must pay these fees up front, (they do not accept Credit cards, lol) way before they even begin handling your case.

You will make  (non refundable) monthly payments ( usually less than you paid monthly for your credit card minimums). The first several payments will be pocketed by the debt settlement company, until they have thier fee collected. Then the payments will be saved up by the debt settlement company on your  behalf  , for the purpose of collecting larger sums of money, to offer debtors settlements on your accounts.

Remember, througout the entire process you are not paying any of  your bills. Creditors will call you and harass you, they will call your place of employment,  your family, and anyone else they possibly can and tell everyone you are in default with your payments. Yes this is illegal but they do it anyways, and your credit card debt settlement company will tell you to tell the creditors to call them instead, but they don’t, they continue to call you. Your debt will be sold several times over, each time with a less scrupulous collector.  In my experience they threatened me with suing, confiscating things, and down right attacked me and my moral ethics.

As I was going through this process I was told by an outside source that whatever debt I was relieved would considered a gift by the IRS, and thus be counted as income, and I would have to pay taxes on this amount of money as if I earned it at a job ( to the tune of about 40% payback to the government). Please also remember when your not paying your bills, late fees, and interest charges accrue quickly ( My dept wound up tripling).

This is when I decided to see an attorney about bankruptcy procedures. I will have you know that all of the payments beyond my fee to the credit card debt  settlement company was non refundable. They would not give me back a penny after I changed my mind.

It is in my opinion that one should contact an attorney for a free consultation before pursuing any debt settlement, counseling, or non profit organizations for debt relief. For $750 I was able to erase all my debt and not have to pay the IRS anything where as I paid a debt settlement company over $2000 and did not get a thing except more in debt.

Debt settling and bankruptcy have the same adverse effects on your credit rating. With  either, if you have any credit cards that is not in default, it would be wise to hold on to those accounts throughout proceedings ( do not use them). These cards will help boost your chances of recovering your credit scores in the future.