Why Debt Consolidation Loans Are The Simple Solution To Credit Card Debt

Thursday, April 24, 2014
We all know how damaging a credit card can be to our financial position if it is not properly managed. But when the damage is already done, what solution is there? The good news is that with a debt consolidation loan, dealing with this kind of debt can be done more quickly and efficiently.

It is difficult to criticize anyone that has found themselves deep in debt as a direct result of their credit card usage. The truth is that it is all too easy to be overwhelmed by them. And given that the average American has four cards to their name, with a combined balance of $50,000, simply clearing credit card debt can be extremely difficult.

Of course, those already with credit card troubles are hardly considered excellent credit borrowers. So, when it comes to applying for a debt consolidation loan with bad credit, can the terms available make the deal as effective as we would like to think? The simple answer is Yes!

Consolidation Solves The Problem

You might wonder how we can be so certain that debt consolidation loans are an effective solution to the problems created by credit card debt. Well, the fact is that with this loan the entire debt can be cleared in one go. After all, consolidation means gathering the separate elements together to create a stronger position.

When it comes to clearing credit card debt, this is really the only way to go. Interest rates can be as high as 22%, so when a payment is missed, the missed payment fee combined with the interest can very quickly become too much to handle. In fact, a $50,000 debt can increase by as much as $1,000 each month.

Even when securing a debt consolidation loan with bad credit, the loan sum is enough to clear all of the card balances and because the interest rate is smaller, and the loan term is longer, the size of the required monthly repayment is much lower than the combined minimum repayment sums. So, savings are made too.

Bad Credit Is Generally Ignored

It might seem that having a poor credit rating is a debilitating factor when it comes to getting a debt consolidation loan, but in fact, the rating has little influence over the application at all. For a start, this kind of loan is designed to help those with poor credit scores, so approval is likely anyway.

Lenders are interested in affordability rather than any score on a credit report because the score itself only represents the credit history of the applicant, not their current ability to make repayments on time. And clearing credit card debt is dependent on being able to make the required repayments anyway.

And how is affordability established? Well, when applying for a debt consolidation loan with bad credit, the lender needs to be sure that a means to repay exists. This means that the applicant must be in full-time employment, and that they have adequate excess income to meet the repayments.

Choosing The Right Consolidation Loan Provider

So, now that the advantages of using a debt consolidation loan are clear, where can the loan be secured from? There are two choices: either go to a loan provider, or go to a consolidation company.

The loan provider is ideal when the overall debt is low, perhaps not reaching anything more than $25,000. Larger loans can be secured, but bear in mind that the responsibility for repaying the loan falls on your shoulders completely. The best of these lenders are found online, especially when seeking a debt consolidation loan with bad credit.

However, a consolidation company is best when the debt involved is extremely high. Clearing credit card debt is a challenge, and requires discipline, and a company takes control of your finances to ensure that a strict budget is stuck to.

Debt Settlement Law Firms: Understand How They Work

Wednesday, April 23, 2014
In many cases, the decision to settle with creditors is the best that can be made. Bankruptcy carries with it a heavy toll and unless something is done to deal with towering debts, financial ruin is around the corner. But how should the settlement be reached? Should it be through a debt settlement law firm, or through a settlement company?

The most common option is to go for debt settlement companies, and there are many to choose from. But, there are clear advantages to choosing a law firm to negotiate and represent a debtor. And if the debt settlement agreement means saving money and being legally protected too, then it is hard to ignore.

Why Debt Settlement Is A Solution

It might seem that agreeing a settlement is not going to make that great a difference. But settlements of as little as 30% of the actual sum owed can be achieved. So, a $10,000 balance is cleared with a single payment of $3,000, and whether the debtor goes through a debt settlement law firm or company, this is a great deal.

When dealing with overall debts of $100,000 or more, the challenge is to secure a deal that can see the debt repaid gradually over a given period of time – for example 10 years. Debt settlement companies and law firms will negotiate with creditors to agree the overall figure, and then set an austerity structure that will see the debt cleared on time.

The main advantage of setting about dealing with the debt problem through debt settlement, of course, is that significant savings can be made while alleviating the financial pressure. What is more, the effect it has on a credit report is less damaging than bankruptcy since some of the debt is paid.

Law firm Vs Company: The Key Differences

So, why choose a law firm to handle the task of taking control and clearing mounting debts? Are they really the better choice? In many ways they are, as the differences between how debt settlement law firms and companies are quite stark.

The key difference is that a law firm can be hugely effective when it comes to dealing with the legal intricacies that are often so important when things do not go according to plan. For example, with relation to collection calls, debt settlement companies have little power to counter the tendency for collection agencies to make continual calls.

However, a law firm knows the legal rights of debtors, and can very swiftly put an end to these calls, which are in violation of the Fair Debt Collections Practices Act. So, a law firm can ensure that the debt settlement is conducted properly.

Other areas in which debt settlement law firms hold an advantage include when a creditor decides to exercise their right to sue the debtor for money. Because they are law firms, they can make contact with the creditor and negotiate a settlement.

But debt settlement companies are not permitted to make contact with creditors once legal proceedings have begun. They have no power in the law at all, so would be unable to find a solution in the unlikely event that a creditor did opt for a court appearance.

Finally, the law firm is perfectly positioned to take care of all legal issues that come out of the debt settlement agreement. They are also correctly set up to ensure the best representation, in sharp contrast to companies, which are not always legitimate in the eyes of the law - so they are closed down.

Debt Consolidation Loans For Bad Credit Management: How Effective Are They Really?

Monday, April 21, 2014
The biggest problem with missing a single loan repayment is that over just a short time, with fines and charges, the sum can become extremely high. For those facing large debt repayments each month, this is a major problem. But the availability of debt consolidation loans for bad credit borrowers means there is a way out.

But just how effective is consolidating existing debts and taking out another loan to repay them? Is it not simply a case of replacing a set of crippling debts with one single crippling debt? Or is there sound reasoning behind the strategy? After all, there are other options to consider too.

We take a look at some of the factors that answer these questions, and establish that taking out a debt consolidation loan really does provide a practical solution to the problem of meeting debt repayments that are just too large to manage.

Understanding The Mechanics Of Consolidation

Before addressing the questions, however, we should look at how consolidation works. By definition, consolidation means bringing resources together in order to strengthen a position. In financial terms, that translates to combining all the different loan balances in order to manage them better. This is exactly the purpose behind applying for a debt consolidation loan for bad credit management.

The reason why this is done? Well, it comes down to fact that clearing separate debts in full with a single debt creates a much more manageable financial situation. This is because individual loans have differing terms, like interest rates, repayment schedules etc. If there are 5 loans, then there are 5 dates on which to make a repayment, and 5 interest rates charged, complicating the whole situation.

By consolidating existing debts this complexity is reduced to a single repayment that is easier to focus on. And with a single debt consolidation loan to face, there is a single interest rate that ultimately means less interest is paid and a single repayment structure to worry about.

Why Replacing Debts Works?

But how can replacing the debt work? How can the financial pressure be alleviated? The fact is that, when securing a debt consolidation loan for bad credit management, the debt is being restructured. This in turn means the pressure is alleviated, but only if the terms are right.

For example, the most important factor to consider when consolidating existing debts is the term of the loan deal. The key reason for financial pressure is the size of the repayments each month. If the size is reduced, then the pressure is lessened.

When taking out a debt consolidation loan, the length of the loan term decides the size of the repayments. If the total sum is $45,000, then a 10-year term means monthly repayments of around $400. Over 20 years, it would be a mere $200. In contrast, the existing structure could have combined monthly repayments on 5 individual loans as high as $1,000, placing extreme pressure on the borrower.

Other Advantages To Consider

So, what are the other advantages that should be considered, especially when compared to the alternatives? Well, the first alternative is to declare bankruptcy, thus removing the pressure created by debt completely. But there is the consequence of a black mark against your credit for as long as 2 years.

Getting a debt consolidation loan for bad credit management means all debts are repaid in full, leaving no reason for any negative consequence. In fact, the credit score improves instead and worsens because as far as your credit report is concerned, the debts were repaid.

This means the terms on future loan deals can be better, ensuring consolidating existing debts is the most beneficial method to clearing debts - as long as the terms of the debt consolidation loan are right.