Is Debt Settlement a better option than a debt consolidation loan? Perhaps, but there are some debt settlement myths to be aware of:
1. Debt settlement doesn’t hurt score – Unfortunately debt settlement will give you a lower credit score than you would get with perfect credit.
2. All creditors agree to debt settlement – Most creditors may agree, but they are not legally bound to accept any offer.
3. Debt settlement companies are helpful – Some are, some aren’t. Generally they will only put in effort if they are being paid.
4. Money sent to the debt settlement company is safe – Not necessarily; there are many debt settlement scams.
5. Debt settlement is going to eliminate debt in 12 months – There is no fixed time; it will depend on how much you pay, and how quickly you pay it.
More information can be found in our article on Debt Settlement Myths.
Before you apply for a debt consolidation loan, you want to ask yourself the most basic question: Do I qualify for a debt consolidation loan? The answer will depend on four factors:
First, what is your income? The lender must assess your ability to repay the loan. If you are not working, or if you have low income, you probably won’t qualify for a debt consolidation loan.
Second, how much do you want to borrow? Obviously it is easier to qualify for a $10,000 loan than for a $100,000 loan. The more you want to borrow, the higher your income will need to be.
Third, do you have any security or collateral for the loan? If you want to borrow $200,000, and you have a house worth $400,000, it will enhance your chances of qualifying for a mortgage debt consolidation loan. If you don’t own a home, or if your home has no equity, you won’t qualify.
Finally, what’s on your credit report? If you have bad credit, it’s unlikely you will qualify.
To find out more, try our free debt consolidation loans calculator to see if you qualify.
It is very tempting to hire a “professional” to help you get a debt consolidation loan. In most cases that’s not necessary. You can go to the bank yourself, and bring proof of your income and a list of your debts, and qualify for a loan without any help.
Debt and credit consultants often promise to help you deal with your debts, and even pay off your debts for only a few cents on the dollar. They will offer a debt settlement program, which they will tell you is better than a debt consolidation loan, to repay your debts faster.
It sounds like a good deal, but often debt consultants are scams, and they are not a good alternative to a debt consolidation loan.
They will charge a large fee, up front, and then they accumulate money until they have enough to propose a settlement. Unfortunately that can take many months, or even years, before they have enough to make a settlement. While you are waiting for the settlement to happen the creditors will still be calling you, and they may even sue you.
You have options, including a debt consolidation loan, a Chapter 13 Wage Earner Plan, and a consumer proposal. You can even file bankruptcy in Canada, or Chapter 7 Bankruptcy in the USA. Consult an expert today and review your options.
High interest rates on credit cards are becoming a serious problems. When the economy goes bad, credit card companies do more detailed regular credit checks on their customers, and at the first sign of trouble they will often raise the interest rates without warning.
That’s a big shock: everything was going well, and you were managing to meet your payments at 11% interest, and then all of a sudden the interest rate jumps to 22%, and you can’t even afford the minimum payments. What should you do?
First, talk to your credit card company. Perhaps they will agree to lower your interest rate, or convert your card into a loan with fixed terms of repayment, at a lower interest rate.
Second, talk to your bank about getting a debt consolidation loan. Use our free debt consolidation loan calculator to determine how much you can save.
Finally, if that doesn’t work, you may need to consider a consumer proposal as a way to consolidate your debts. You have options, so review your options now to keep your interest rates low.
A debt consolidation loan is a great way to reduce your costs of borrowing. If you can arrange a line of credit or loan at the bank at a low interest rate, and use that money to repay your high interest credit cards, a debt consolidation loan is a great way to save on the interest you are paying, and help you get out of debt faster.
In most cases the cheapest possible interest rate is on a secured loan, such as a mortgage. The bank or mortgage lender knows that if you don’t pay they can take your house. They are “secured”, so they have less risk, so they are willing to give you a cheaper interest rate.
That’s why many people arrange for a mortgage debt consolidation loan or a home equity debt consolidation loan to repay lower their cost of borrowing.
Beware! By getting a secured loan, you have now put a charge against your house. If you don’t make your loan payments, you will lose your house! A secured loan is a great way to reduce your interest costs, but only get a secured loan if you are absolutely certain that you will be able to make all required payments.