Debt Consolidation and Bankruptcy

When faced with a crisis, it is easy to throw in the towel and run away. The true test of character comes when you withstand the hardship and seek to resolve the issues rather than taking an escapist approach. Similarly, mounting debt and other burdens may be sapping you mentally, but instead of opting for bankruptcy and trying to be escapist, you must look for other options that can get you out of the mess.

This is important because what appears as a solution to your problems may be worse than the problem, in this case filing for bankruptcy will come back to haunt you in the future through bad credit rating and the fact that no creditor will advance any loan for the next 2 years is another negative. Hence bankruptcy should be the very last option and you must actively look at everything else to arrive at a solution.

Debt Consolidation Agency

That solution could be in the form of a debt consolidation body that can help you decrease your burden and get you out of the bankruptcy mode. The agency will allot you a counselor who has many years of experience in dealing with creditors. He will first discuss with you and get an idea of your assets and liabilities apart from details of your occupation. You will be required to submit proofs to support these facts.

He will now suggest a program which would be tailored to take care of your debt and if suitable to you would set up a meeting with your creditors to work out the new repayment schedule. The debt consolidation person will be able to reduce the interest rate as well as the monthly payment through extending the payment tenure. In some cases, borrowers have benefited by up to 70%.

Debt Repayment

After getting the creditors sanction on the new repayment schedule, you will be required to adhere to the schedule. This is a function of the terms the counselor has been able to negotiate with the creditors. Sometimes you may be required to make an application for a loan and this would be used to clear the existing debt. In future, you only need to start repaying this loan. You may also get this facility from the agency itself and they would then start collecting this repayment on a monthly basis from you. Your single point of contact will henceforth be the agency. You must however take care that you do not default on any payment that is due every month.

As you can see, all is not lost and you need not consider bankruptcy when you have an option like debt consolidation at your behest. It will certainly help you come out of the problem and is a far better option than filing for bankruptcy.

Debt Consolidation Companies

The idea of using a debt consolidation company is good when you have accumulated a lot of debt from multiple creditors and are struggling to make payments. They help you tide over this problem and offer repayment programs mainly for unsecured loans. These companies act as intermediary between you and the creditors and work out a repayment plan for you. They make their money on a fee ranging from 9% to 12%.

It is better to approach them only for unsecured loans as placing collateral like a car or real estate could be dangerous leading to repossession, if you default.

Some suggestions on how to choose an agency:

• As with most issues related to finance, you need to do your due diligence and research companies and their offers before signing up. Many debt consolidation companies are increasingly resorting to false and malicious claims of freeing you from debt. You need to be aware and not fall prey to such agencies. Sign up only with reputed agencies and meet up with a representative to understand their thought process and how they can help you.
• Verify if the agency you have short listed has the right to operate and whether they are members of the BBB. Call the company number to see if they are available through the day. Also check if they can provide any referrals and speak to that person to ascertain the agency performance.
• Contact a reputed financial expert to take his assistance and guidance for your monetary problems. He may also put you in touch with a good agency and can work out a good deal for you.
• You can talk to your creditors yourself and work out a decreased rate of interest by yourself also. Attempt to settle the high cost ticket items and follow the descending route to settle debts. Ensure you try and clear all unsecured debt like card, medical and other personal debt as they are the high interest bearing ones and can bleed you.

The reason why APR is high for unsecured loans is because they are not backed by strong collateral and this compels the agencies to charge high rate of interest. Once you settle your unsecured loans, you can start with the secured loans. Here, since you can offer strong collateral, you can get much lower rate of interest and save money.

Getting out of debt is not difficult with some discipline and smart negotiation from you. The selection of a debt consolidation agency is an important step. If the offers are too good to be true, you need to be wary and double check.

Non Profit Debt Consolidation

People who have run up debt are looking at some program that will them solve their problem and debt consolidation offers them some hope. While there are many offers abound in the market, a borrower needs to choose the one for him after some study and typically a non-profit agency should be ideal for him.

Why do I say so?
Other agencies have a vested interest in making their own money out of such programs and what they offer may not always be in your best interests. Non-profit agencies do not have a vested interest and may end up giving you a good deal.
Free Debt Counseling
These agencies offer free advice and they also guide you through the process in a more transparent fashion. Information about the other aspects of the program enables you to plan your finances in future in a better manner and assists you to minimize damage to your credit rating. You cannot opt for any non-profit agency and need to do your due diligence before choosing one that will help you get out of the mess you are in sooner than later.

It is useful to be aware that non-profit services also has some cost and is not totally free. As long as this fee is nominal and affordable, you should not be unduly worried.

You need to insist on a credit counselor who will negotiate with your creditors after understanding your current financial position.
The counselor will send you an agreement. The agreement should ensure that your debt is decreased by about 40% to 75%. The responsibility of the agency is to merge debt, and ensure payment is made by the borrower every month.

The advantage you have as a borrower is that your payment obligation does not increase over time and you can settle the debt sooner than later. The saving you generate from a lower monthly payment can be reinvested into the repayment.
Such agencies help you to achieve the following:

• Methodology to restructure, and set financial objectives
• Plan to lead a better life.
• Save money to get the advantage of better buying power.
• Generate savings to improve quality of life.
• Structure and use information to get out of debt faster.

It is necessary to remember that a non-profit agency will help you achieve your goals only if you are disciplined enough to follow their recommendations and maintain prudent finance management. It is also important to make the repayment on schedule every month without default as it will erode the confidence levels of the creditor and put you in deeper trouble.

What is Debt Consolidation

When one is in deep debt and the burden reaches a point of exasperation and tension, it is better to opt for an innovative financial instrument called debt consolidation. Very often the current loan is unstructured and involves high monthly payouts due to increased interest rates. With debt consolidation, the burden of two or more loans is merged into one single entity and that assumes the form of a personal debt. This form of consolidation typically results in a lower interest payment allowing you to save money on a monthly basis. The new structure also enforces discipline and a tight repayment schedule to enable you to settle the debt at the earliest.

You can connect into such a plan through an agency or through a classified consultant. Once you meet up with a qualified debt advisor, you will be able to arrive at a decision as to which is the best option for you. Under the debt consolidation plan, three options varying with the requirements of an individual exist – loan consolidation, loan management and the filing of bankruptcy.

Under the debt or loan management option, the consolidator will take on the burden from you and enter into a separate repayment arrangement with the lender based on their own credit rating. Typically, they already have existing ongoing relationships with these lenders like card companies, other collection agencies etc and are thus in a better position to negotiate terms. You benefit since the interest rates are always on the lower side as opposed to the one you are being levied and this results in significant monthly savings besides having to deal with only one creditor. Management of the debt is thus far simpler and tenable.

You need to be aware though that having entered into such an arrangement, you cannot operate any of your cards barring one for any exigencies. The positive feature is that you will not be troubled by the different creditors and need to deal with only one, making sure that you do not fall back on the repayment schedule agreed upon.

You need to read the fine print of the arrangement and make sure that the new debt tenure is not an extended one, as that will mean that you end up paying far more. Moreover, do not offer your house as collateral. It can be repossessed in the event of any default from your side.

The repayment schedules are normally agreed upon for tenure of 5 – 7 years. Unfortunately, even this schedule is not always maintained and adhered to due to changing economic conditions and bad after sales service.

You can look forward to a commission which would be approximately equal to the first monthly payment under the new plan. There is a component of administration fee that also needs to be paid. This could be a flat charge or a percentage.

To sum up, a loan consolidation plan works well for people struggling with interest rate payment of over 18% or are into the credit card trap.