Consumer Financing Debt Consolidation Loan

DEBT Consolidation loan FINANCING

A DEBT Consolidation loan can RELIEF your DEBTs

Your financial situation is different from anyone else. You should take the time to review this debt consolidation financing options guide to find the best solution for your needs and goals.

 

What Is A Debt consolidation Loan?

A debt consolidation loan is a personal loan specifically designed to combine multiple debts into a single monthly payments.  This type of financial product provides you the funds needed to pay off multiple debts, normally at a lower interest rate and more favorable payment terms.  The types of debts to be consolidated are of a similar type, such as credit cards, medical bills and other unsecured debt.

The advantages of debt consolidation loan financing are several:

  • Your multiple debt payments are reduced to one, simplifying your payment obligations.
  • The consolidation loan interest rate should be less, reducing the cost of servicing your total debt and saving you money.
  • Depending upon the consolidation loan payment terms, your monthly payment should be less which helps with your cash flow and budget.
  • You should pay off your total debt faster due to the lower interest rate on the consolidation loan and increased monthly payments to the principal balance.

However, it is important to remember that debt consolidation loan financing does not reduce your total debt. Rather, it simply repackages multiple debts into one larger loan that you can pay off the debt faster, with lower interest costs to you.

How A Debt Consolidation Loan Works

How DEBT Consolidation Loan FINANCING Works

A debt consolidation loan is a financial option used to consolidate your debts. Normally this is used to refinance your existing unsecured debts such as credit cards, medical bills and personal loans. The goal of debt consolidation loan financing is to improve your financial situation by lowering your TOTAL costs of financing your debts and ideally get out of debt faster.

  • You should review all your unsecured debt obligations: credit cards of all types, store credit cards, personal loans, tax obligations, etc. Assuming you include all of them in your consolidation loan, determine the total amount of debt and monthly payments. Your consolidation loan and payment terms should cover the total debt and have similar monthly payments.
  • Debt consolidation loans are available from a variety of lender types: banks, credit unions, on-line lenders, etc. Your lender application will reflect your previous review of total unsecured debt and desired monthly payments. The longer the term of the consolidation loan you request (36 to 60 months), the lower the monthly payment. However you are increasing your interest costs.
  • The lender reviews your financial profile (income, debts and credit score) to determine whether you will be approved for the consolidation loan and interest rate offered. For loan approval, the lender uses your debt-to-income DTI ratio, which should be less than 41%, for approval. The better your credit score, the better will be the interest rate offered.
  • The lender may require direct disbursement (the lender directly pays) of your consolidated debts, with any remaining funds released to you afterwards. This happens when your DTI ratio is less than 41% only after having paid off your consolidated debts. The lender does this to reduce their financial risks by ensuring that your consolidation loan does not add to your total debt.
  • With the debt consolidation loan disbursement, your unsecured debts have been paid off. You should no longer use these credit accounts. Let these accounts go dormant, but not cancelled. This will increase your amount of available credit, lowering your debt to credit ratio. This will help improve your credit score over time.

If you are successful obtaining debt consolidation loan financing, with a lower interest rate and similar monthly payments, more of your monthly payment will be applied toward the debt principal. This means you will be paying less in interest payments and will pay off your debt faster. That should be your goal.

Debt Consolidation Alternatives


Debt Consolidation ALTERNATIVE
Applicable For
Comments
Debt Consolidation LoanMultiple unsecured debts $10K+ | Fixed terms of 36+ months | Requires good credit scoreLower interest rate & single monthly payment can reduce total interest expense. Review lender loan origination and any prepayment penalties.
Balance Transfer Credit CardMultiple unsecured debts $5K+ | Variable revolving balance | Requires good credit scoreLow introductory interest rate. Ideal for fast payoff of debt. Review transfer fees and interest rate after introductory period.
Debt Management ProgramMultiple unsecured debts $10K | Fixed monthly payment to third-party of 36+ months | Credit score not factorCredit counselor negotiates waver of creditor’s existing late fees and penalties. Low monthly administration fee. No additional debt assumed.
Debt SettlementAlternative when debt consolidation options not viable | Fixed monthly payment to third-party of 36+ months | Credit score already damagedDebt advisor negotiates creditors lump sum payoffs as funds available. Administrative fees of 10-20% of debt settled. Debt reduction, not debt consolidation.
Personal Secured LoanMultiple unsecured debts $20K+ | Fixed terms of 36+ months | Asset pledged as collateralUse only if debt consolidation loan not viable. Risk of asset loss, if payment default.
Home Equity Line Of CreditMultiple unsecured debts $50K+ | Fixed terms of 36+ months | Asset pledged as collateralUse only if debt consolidation loan not viable. Risk of major asset loss, if payment default.
Student Consolidation LoanPrivate & Federal student loan debts | Fixed terms of variable duration | Requires good credit scoreUse as supplemental to Federal financing. Interest rates fixed and variable. If Federal student loan consolidated, loss of Federal benefits.

Should You Consolidate Your Debts?

Should You Consolidate Your Debts?

Whether you use a consumer consolidation loan or an alternative financial option, debt consolidation may not be suitable for you. Given your particular situation, debt consolidation may hurt rather than help your finances.

consider debt consolidation LOAN FINANCING when…
  • Your Debt Is Less Than Your Income – Lenders use your Debt-To-Income (DTI) ratio as a means test of whether you can afford a monthly debt consolidation payment. Your DTI should be less than 41 percent. You only undertake debt consolidation to successfully complete the process.
  • You Have A Good Credit Score – This will help you qualify for favorable lending terms, particularly the interest rate, on a consolidation loan or a balance transfer card. The better the terms, the lower the financial costs and less time to pay off your debt.
  • You Have Sufficient | Consistent Monthly Income – Lenders will look at your monthly cash flow to determine the risk of your paying your monthly debt consolidation payment.
  • A Realistic Plan To Reduce Your Debts – You must change how you use credit and spending to avoid repeating the need for debt consolidation situation in the future. You must change your financial behavior.
Do NOT consider debt consolidation LOAN FINANCING when…
  • Your Debt Is More Than Your Income – You will not pass the lender DTI means test indicating that you will not be successful making consistent payments with a debt consolidation loan. A debt settlement process is a preferable option.
  • You Have A Poor Credit Score – This will hinder you from obtaining favorable lending terms for a debt consolidation solution that offers a realistic chance for success. You should focus on improving your credit score and then restart the debt consolidation process.
  • You Do Not Have Sufficient | Consistent Monthly Income – Whether due to an unexpected financial hardship or a long-term situation, your lack of sufficient income does not allow for debt consolidation. Your alternative should be debt settlement, or worst case, debt bankruptcy.
  • No Realistic Plan To Reduce Your Debts – If you do not see a means how to reduce your use credit and spending, debt consolidation is not the solution for you. You should consider debt settlement as an alternative.

Things To Consider

Simplify the payment process on your multiple unsecured debts.

Lower the total interest charges on your consolidated unsecured debts.

Reduce the time you need to cancel your unsecured debts.

Lower your monthly payments and improve your cash flow.

Improve your credit profile if you consistently meet the terms of debt consolidation loan.

Help you achieve long-term control of your financial future.

Reduce your total non-secured debt. It is simply refinanced into a larger non-secured debt.

Does not guarantee that the interest rate of the debt consolidation loan will be lower than the aggregate of your non-secured debts. The lender will determine the interest rate based on your credit profile and other factors. If the rate is not low enough, this is not the right debt relief solution for you.

Prevent you from adding to your total non-secured debt after consolidation. A debt consolidation loan term ranges from 36-60 months. It requires discipline to not add more unsecured debt, particularly new credit card debt.

Deal with the the cause of excess credit card debt which is lack of financial discipline.

Most Americans carry an excessive amount of credit card debt. While convenient as a form of payment, it is an expensive type of debt to use and requires financial discipline. Many lack this.

Debt consolidation is not the same as debt reduction. The amount of credit card debt being financed remains the same. It simply moves from several small to one large personal loan. It is a matter of how expensive (interest charges) it will be for you to pay off the debt. The debt still needs to be paid off. It didn’t just disappear.

Debt Consolidation will not eliminate your unsecured debts but will help you get them under control. It can be a successful debt relief option when:

    • Your unsecured credit card debts are at least $10,000 or greater.
    • You can consistently support the debt consolidation loan without resorting to new credit card purchases for your other monthly expenses.
    • The debt consolidation loan APR should be significantly less than your credit card accounts.
    • You have the discipline to not use credit cards until the debt consolidation loan is paid off.

Debt consolidation, when used properly, should improve your credit profile with time.

With the debt consolidation loan funds you will be paying off multiple credit card accounts. This is positive for your credit profile.

The multiple credit card accounts should be kept active rather than canceling them. Each of these credit card accounts has an unused credit limit. The sum of these unused credit limits increases your total amount of available credit. This lowers your Credit Utilization ratio, where less than 30% is positive for your credit profile. You improve your “credit worthiness” as a consumer.

You need to be consistent in your payments of the debt consolidation loan, otherwise this will be negative for your credit profile.

As your credit card balances are paid off you should do a thorough review of your credit report to ensure that the accounts are probably updated. Delays and mistakes can happen

And finally you need to avoid the biggest mistake people make after consolidating credit card debt. That is, not stopping making new credit card charges.

Debt consolidation is to allow you to focus on eliminating, not adding to your credit card debt.

Credit Repair | Identity Theft

Frequently Asked Questions

Debt Relief Services

Debt relief refers to resolving your debt without taking out a new loan. Our financial partner debt relief program is designed to help you save as much money as possible, as quickly as possible, based on the money you have available. It puts you back in the driver’s seat to get you the maximum savings on your debt.

Our financial debt relief partner offers an in-house debt relief program where fees are earned based on results of the program. The way this program works is that money will accumulate on a monthly basis in a special purpose account. Alternatively, you may have a lump sum amount that will accelerate the program. Based on the amount of money accumulated, our financial debt relief partner will negotiate the best possible reductions for your debt. Each account is negotiated and resolved until all of them are settled.

Our debt relief financial partner offers services related to tax problems such as tax liens, wage garnishments, delinquent payroll tax issues, and other tax related issues. In some cases just by getting proper tax returns filed, a significant adjustment in the amount of taxes owed is realized.

Our debt relief financial partner is a member in good standing with the AFCC, the largest and oldest association for debt relief companies. In order to be a member of AFCC, a debt relief company has to comply with a stringent set of requirements and disclosures and maintain these standards in order to keep up with renewals.

As an alternative to bankruptcy, a debt relief strategy is the best and fastest way to get out of debt. However, there are conditions that must be taken into account for the program to work.

The most important factor that determines the success of a debt relief program is the individual’s ability to fulfill their payment obligations on a monthly basis for the duration of the program.

A number of factors influence the cost of entering a debt relief program such as the creditors you owe, your credit balances, your ability to contribute monthly dedicated account payments into the program, the amount that can be negotiated from your balance, how quickly it is negotiated, and the fees charges.

Our debt relief financial partner fees, on average, are 20% of the total debt amount enrolled and are calculated as part of your monthly repayment. There are no upfront fees to be enrolled in our debt relief financial partners’s relief program.

The goal of the debt relief program is to help save you as much money as possible, as fast as possible.

Our focus is to help you save as much money as possible, as soon as possible. Your focus should be on your job or business and family. It’s hard enough having to manage everything going on around you and still have to worry about your debt. Our debt relief financial partner has professional, trained staff to provide you with the best way forward.

While you ensure that you make your payments monthly, which may account for 2% of the effort, our debt relief financial partner is working tirelessly to ensure that the other 98% of the process is in place and managed to help you save money and be debt free as quickly and painlessly as possible.

Loans such as federal student loans, certain credit union accounts, and government loans are not eligible to be included in a debt relief program. Any loan that is secured to a physical item, such as auto or mortgage cannot be included.

Private student loans, that are not government backed, may be included in a debt relief program.

Our debt relief financial partner is licensed and/or bonded in numerous states. Our debt relief financial partner is in full compliance with federal and state laws, as well as meeting any licensing and bonding requirements as needed by each state where it provides services.

Once you are enrolled in a debt relief program, your responsibilities will include keeping up a great line of communication and making payments on a monthly basis into a special purpose account.

Our debt relief financial provider will handle the rest of the process and make sure that you save you as much money as possible, as fast as possible for as long as you are in the program.

Qualified candidates are those who have a legitimate financial hardship, which has caused them to fall behind on their payments to creditors, or will cause them to fall behind in the near future. Our debt relief financial partner only represents consumers who are truly in need of its services and stand to significantly improve their financial situation.

Due to your legitimate financial hardship, you are able to participate in this savings program in order to help pay your debts in the future. We are not here to advise you not to pay your debts now, however if you are able to make payments to your creditors, then you probably don’t actually have a legitimate financial hardship.

According to the US government: ” A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the ‘insolvency’ exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent.”

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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