Debt Consolidation Loans: Pros and Cons
You dread paying your monthly bills; the balances aren’t decreasng, the due dates change, and extra fees keep adding up. What can you do? Getting a debt consolidation loan can help stabilize your finances and reduce bill paying chores. Here are some options, along with pros and cons for each.
Secured Debt Consolidation Loans
Home refinance or home equity loans: If you own your home, and have enough equity, you may qualify for a mortgage refinance or home equity loan. These loans provide cash to pay off bills, typically at much lower rates than credit card companies charge. The bad news is that adding to your mortgage amount can potentially increase your risk of losing your home to foreclosure. You also have to pay lender fees and other costs to refinance your mortgage or take out a home equity loan. These costs may negate potential savings unless you’re carrying a significant amount of consumer debt.
- Auto title loans: If you cannot qualify for an unsecured personal loan (and those with high levels of debt may have difficulty getting approved), you may be offered a “secured” loan, or vehicle title loan. Typically, you sign the title to your car over to your lender until you’ve repaid the loan. You keep your car, but this can be risky; if you fail to make payments, you could lose your car. Carefully weigh the benefits of consolidating debt with a secured loan; it may be worthwhile if you’re certain of your ability to pay off the loan quickly.
- Pawnshop loans: These are lenders of last resort; they charge exorbitant rates and many borrowers end up losing the goods they put up as collateral. Before going to a pawnshop for money, check into non-profit credit counseling. These agencies can help you reduce the cost of debt and work with your creditors to provide debt relief.
Unsecured Debt Consolidation Loans
An unsecured debt consolidation loan may be worthwhile, but only if you can pay off all of your bills with the loan. Unsecured loans involve greater risk, so lenders charge higher rates. Compare the APRs of your debts with APRs quoted for debt consolidation loans. The major risk with debt consolidation is that you incur future debts. If you doubt your ability to control spending and live on a cash based budget, a debt consolidation loan may lead to more debt. Consult a credit counseling service to learn more about debt consolidation and debt management assistance that can help you get and stay out of debt.
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Loading ...Bankruptcy Has Repercussions for Years
Filing for bankruptcy should only be used as a last resort if you can’t dig your way out of debt. Don’t be fooled into thinking that a bankruptcy filing has little impact on your financial situation. Going this route is certain to affect your entire life for years to come.
Pushed into Bankruptcy
There are many reasons people resort to bankruptcy. Too much credit card debt, a job loss, divorce, or illness can push anyone into financial ruin. For example, a recent Families USA report said nearly two-thirds of bankruptcy filings are related to medical issues. Read the rest of this entry »
(No Ratings Yet) Loading ...Credit Card Debt Levels Fall in September; Fees and Rates Rising
Consumer debt levels fell for the eighth consecutive month in September, according to a report issued by the Federal Reserve. Falling by an estimated annualized rate of 7.2 percent, U.S. consumer debt fell by approximately $14.8 billion. Consumers have reduced debt by about $86.2 billion since September 2008, but this isn’t as commendable as it seems. Included in this figure are debts eliminated through charge-offs by credit card issuers and lending institutions. The Fed estimates the rate of declining consumer debt to be about 10 percent for the third quarter of 2009.
What’s “Up” with Credit Card Rates and Fees?
Credit card companies are responding to recent legislation regulating some of their consumer-unfriendly practices by reducing credit lines, hiking interest rates, and imposing more fees. If you’re tired of traveling on the hamster wheel of credit card debt (you pay and pay and pay, and get nowhere fast), credit card debt consolidation may be an option.
Debt Consolidation and Consumer Credit Counseling
Consumer credit counseling services work as intermediaries between consumers and their creditors to provide affordable debt repayment solutions. If you agree to a repayment plan through credit counseling, you sign an agreement and make one payment to your credit counseling company, which then deducts its service fee and distributes what’s left to your creditors. Paying one bill instead of several helps avoid missed or late payments, and making steady payments helps reduce debt faster than if you continue racing along on the hamster wheel of juggling minimum payments and barely breaking even.
Debt Management Enhances Debt Consolidation Efforts
Credit counseling typically provides the following services:
- Evaluation of income and debts
- Develop a cash based budget including amounts required for your debt consolidation plan and emergency savings
- Negotiate terms of debt consolidation/repayment plan with creditors
- Collect and distribute payments to your creditors
- Provide ongoing support for budgeting and debt management
- Charge administrative fees according to income and ability to pay
If credit card debt is ruining your credit and your life, get debt help immediately. Credit counseling and debt consolidation solutions may take a few years, but reclaiming your life makes it all worthwhile.
(No Ratings Yet) Loading ...Dangers of Debt Settlement
Debt settlement has helped some people wipe out or reduce credit card debt and other bills. A California man told MSN Money that he settled $281,000 of debt for $75,000. But debt settlement isn’t a magic solution and can cause even more financial woes in some situations.
Debt Settlement and Fraud
For every debt settlement program out there than can legitimately help you, there are others looking to rip you off. That’s partly because the debt settlement industry is mostly unregulated. Avoid debt settlement programs that require you to pay fees upfront. Often these firms take the money and are never seen or heard from again. Read the rest of this entry »
(No Ratings Yet) Loading ...Colorado Study Looks at Debt Consolidation Services
The Colorado Attorney General’s Office found that people who sign up for debt consolidation services often end up paying money without really solving their debt problems, according to the Grand Junction Daily Sentinel.
The study found that less than 10% of people who signed up with 42 debt settlement and debt consolidation services between 2006 and 2008 had actually paid off debt or completed their agreements. Read the rest of this entry »
(No Ratings Yet) Loading ...House Votes to Move Up Effective Dates of Credit Card Reform Law
The House of Representatives voted to move up the effective date for some of the legislation proposed under the Credit Accountability, Responsibility, and Disclosure Act (CARD). After constituents complained in the wake of receiving increases on credit card interest rates, lawmakers realized that something had to be done. Unfortunately for many of us, the credit card companies have already increased rates. The legislation that would be affected if the Senate likewise votes to move up effective dates includes:
- Banning retroactive rate increases on existing credit card balances.
- Protection from “triggered” increases in rates or fees resulting from one payment being late by a few days.
Unfortunately, consumer rights and welfare are likely to remain at the bottom of the priority list for credit card companies; they have tremendous influence in Washington D.C., and typically respond to regulatory pressure by passing along costs to customers.
Debt Management and Eliminating Credit Card Debt: The Consumer’s Solution
The best way to deal with credit card debt is by eliminating it. Whether you formulate your own plan for paying off your credit card debt, or seek help through credit counseling services, eliminating high cost debt is a strong step toward improving your finances. Here are some tips for dealing with credit card companies, paying off debt, and getting debt help.
- Shop credit card rates and offers: Compare credit card offers and don’t hesitate to transfer balances to new cards offering lower annual percentage rates (APR’s). The APR includes the interest rate and fees calculated as an annual percentage.
- Using balance transfers: Transferring balances between cards can work if you’re willing to carefully read offers and can pay off balances transferred during the initial offer period. Don’t stop reading at “zero percent for 6 months,” because balance transfers often carry transaction fees of three to five percent for each transfer. If you’re transferring from high rate cards, paying transaction fees may be worthwhile, but take time to do the math.
- Vote with your scissors: Stop using credit cards. It’s best not to close credit card accounts, because this can negatively impact your credit score. Pay off your highest APR account first, then concentrate on the next highest rate card, and so on until you’ve paid off your credit card debt.
- Create (and keep) a cash-based budget: The key to successful debt management is not carrying balances on credit cards. In order to do this, you need to make a household budget based on available cash.
- Getting debt help: If you’re stressing out over debt and it’s causing problems in your life, please seek debt help. You can work with a credit counseling service to arrange debt consolidation and affordable repayment terms. Regaining peace of mind and restoring financial security is well worth the effort.
(No Ratings Yet) Loading ...Get Help With Debt Instead of Walking Away from It
You’ve probably heard about people with large smounts of debt who’ve chosen to walk away from paying it off. But even if you feel desperate to be free of credit card debt, loans, and other bills, intentionally defaulting on it really isn’t a good idea.
Reasons for Defaulting
People walk away from debts for various reasons. They may be angry at banks who jack up interest rates and refuse to ease the terms of their accounts. Some people may be disgusted with themselves for getting so deep in debt. Others may decide to stop paying on credit card debt because they plan to file for bankruptcy. Read the rest of this entry »
(No Ratings Yet) Loading ...Credit Card Debt: Had Enough?
U.S. consumers are battling record unemployment rates, rising health care costs, and falling home values. And guess what? Meanwhile, the credit card companies stand at the ready, raising interest rates, imposing fees, and threatening to impose new fees on those who act responsibly and pay their balances in full each month.
Credit Card Debt: Is it Worth It?
Today consumers use credit cards for everything from charging cat food to buying trips around the world. We book hotels, buy flat screen TVs, and charge airline tickets with credit cards. In return, the credit card companies provide convenience along with certain purchase protections. Credit cards are definitely a convenience, but convenience turns to consternation when you carry revolving credit card debt. Finance charges are added to your balance. Minimum payments are so small it can take decades to pay off your balances. Your balances rocket skyward while your bank balance free-falls. You pay and pay. And you owe.
Credit Counseling and Debt Consolidation: Finding Your Way Free
If you’ve got credit spending under control, congratulations. But control doesn’t mean waking up in the middle of the night wondering if your last purchase at the TV shopping marathon put your ultra titanium credit card over the limit. If you’re stressing out with credit card debt, it’s time to get help.
Consumer Credit Counseling Services Can Help
These services help debtors learn how to manage their finances on a cash basis while paying off credit card debt with an affordable repayment plan. Depending on how much you owe, and how much you can pay, a credit counseling service arranges repayment terms with all of your creditors, and you make one scheduled payment to your credit counseling service. Your credit counseling service distributes payments to your creditors, so you also receive the benefit of low cost debt consolidation.
Professional credit counseling services can help you eliminate debt for a relatively low cost, especially when compared to the finance charges typically accruing on credit card debt. The downside to credit counseling is minimal, but you need to agree to certain requirements and understand what credit counseling services cannot do.
- Say good bye to your credit cards: Consumer credit counseling services negotiate affordable debt repayment for their clients, but credit card companies require that consumers repaying through such arrangements close all of their credit cards. That Visa stashed in the sock drawer? Toast. You are also required to agree that you won’t open any new credit accounts for the duration of your repayment plan.
- No “instant credit repair”: Credit counseling services cannot erase prior delinquencies from your credit reports, but by repaying debt over time, and lowering your debt levels, your credit should improve.
- No guarantees: Credit counseling services can help you get out of debt, but they cannot guarantee that you can qualify for future credit.
Gaining freedom from credit card debt is worth the work and time it takes. Contact a professional credit counseling service and start building financial security.
(No Ratings Yet) Loading ...Credit Card Debt Collection: Senator Cites Need for Increased Consumer Protection
A report issued by the Government Accountability Office (GAO) suggests that unfair debt collection techniques are commonplace. Senator Carl Levin, D-Michigan supports creating a new federal agency that protects consumer rights and enforces consumer entitlement to ethical collection practices. Although the Fair Debt Collection Practices Act (FDCP) was passed in 1977, Senator Levin suggests updating it to reflect new technologies and increasingly aggressive debt collection practices. It takes time to pass legislation, so consumers must protect themselves in the meantime.
Unsecured Debt Consolidation Options Scarce
Qualifying for an unsecured debt consolidation loan for enough to cover all of your bills can be difficult. Short of asking for loans from relatives and friends, what can you do? Consulting a credit counseling service can provide affordable options for repaying credit card debt. Credit counseling services don’t provide debt consolidation loans, but they do work with consumers and their creditors toward developing affordable debt repayment agreements. The benefits of repaying credit card debt through a consumer credit counseling agency include:
- Your credit counselor can help you develop a realistic cash based budget.
- Credit counselors can negotiate reduction and waivers of recurring fees that add to your debt each month.
- Your credit counselor may be able to negotiate lower interest rates. This helps you pay off your debt faster while keeping your debt from rapidly increasing as unpaid interest is applied to your credit card balances.
- Once you agree to a repayment plan through credit counseling, your credit counselor draws up a written agreement that’s approved by your creditors. Your repayment agreement also acts as a form of credit card debt consolidation, as you make scheduled payments to your credit counseling agency for all of your debts; your credit counseling agency deducts its fee and distributes the balance of your scheduled payments to your creditors. Making one payment instead of several can help you avoid late or missed payments.
- Once you’ve signed a repayment agreement, your credit counseling agency acts as an intermediary between you and your creditors. You can refer collection calls to your credit counselor according to the instructions and terms of your repayment plan.
Making one payment a month (or otherwise if required by your debt repayment plan) is easier than juggling several bills and avoiding phone calls at all hours. You are asked to destroy your credit cards and close your accounts. This may seem unreasonable, but it does ensure that you won’t incur more debt while trying to pay off the debt you already have. Don’t focus on losing your credit cards, but instead look forward to the financial freedom you can enjoy when you’ve repaid all of your credit card debt.
(No Ratings Yet) Loading ...Getting Student Loans Without a Co-Signer
You may be intimidated by the thought of paying for a college education at today’s prices, especially if you’ve had a lot of debt in the past and are leery of running up more bills. If you’re like many people, you probably have considered applying for student loans with or without a co-signer. Here’s what you need to know about getting a loan on your own. Read the rest of this entry »
(No Ratings Yet) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
We rely on a large network of financial experts and leading authors to write the content for the DebtHelp.com Blog.
Debt Consolidation Loans: Pros and Cons
Bankruptcy Has Repercussions for Years
Credit Card Debt Levels Fall in September; Fees and Rates Rising
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno.
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