Important Questions to Ask Your Lawyer about Debt Consolidation
Despite the fact the credit card debt is far from being cheap, Americans continue to swipe their cards as if there is no tomorrow. Total revolving debt, according to https://www.forbes.com, in 2018 stood at over $1.04 trillion with credit card interest and fees in excess of $104 billion in a 12-month period under study. Not surprisingly, the number of people who have trouble managing their credit card debts is huge. Many of them have simply spent far beyond what their cash flows can support in monthly repayments while another lot have trouble in monitoring multiple credit card statements every month and end up missing making the payments by the due dates.
The consequence of bad management of credit card debt is invariably the imposition of penal charges and interest rates by the card companies and collection calls for delinquent accounts. It is quite natural for cardholders to panic when faced by debt collectors and not able to decide the best course of action to protect their interests. Compounding the situation is a whole lot of information often contrary to each other. If you are facing a stressful situation due to your credit card debt piling up and have no clue about debt consolidation, some of the top questions you should ask your lawyer are:
Is Debt Consolidation the Same as Debt Settlement or Bankruptcy?
Debt consolidation is completely unlike debt settlement or filing for bankruptcy. Debt consolidation involves aggregating all your individual card dues, taking out a new loan for the same amount, and using it to repay the original debts. Debt settlement is a process of negotiating with all your principal creditors requesting them to forgo a large part of their interest and sometimes even the principal amounts due to your financial circumstances. It is only when you are able to convince the card issuers that unless they settle, you have no other option but to file for bankruptcy, which would entail them not getting any of their money back being unsecured debts that debt settlement is successful. Bankruptcy is the final step that you can take when you have absolutely no means to repay your debt. You can apply to a bankruptcy court, which will then take over the administration of your estate and repay your creditors as best possible.
Will Debt Consolidation Reduce the Amount of Debt?
This confusion generally arises because of a lack of clarity between debt consolidation and debt settlement. When you consolidate debt, the amount of your total debt does not reduce by even a single penny. It is when you sign up for a debt settlement program that there is a chance of your being able to reduce the amount of the debt by negotiating with the creditors. The confusion between the two methods is also encouraged by unethical debt relief companies who want to take advantage of the ignorance of normal customers and push them into enrolling for a debt settlement program. Always deal with reputed companies like nationaldebtrelief.com, easily one of the best-rated debt consolidation companies.
Why Opt For Debt Consolidation If It Cannot Reduce Debts?
Even though consolidating debts does not reduce the amount of debt, there are numerous advantages of this method of getting on top of debt. Firstly, when you consolidate debt, you are left with only one debt to take care of. This means that you do not have to track multiple credit cards statements every month to ensure that you make the minimum payment by the due date. With a debt consolidation loan, you just need to make one payment every month on the same date. Further, when you consolidate debt, there is every chance that you will be able to save significantly on the interest expense. This is because the difference between the credit card rate of interest that is normally very high and the rate charged on debt consolidation loans to customers with a reasonably good credit score can be quite significant. Over the period of the loan repayment, the total interest expense can be slashed considerably and you can get free of debt far faster. In addition, by extending the period of the debt consolidation loan, the monthly repayment amount can be made more affordable.
Will the Credit Score Be Damaged Irreparably by Consolidating Debt?
If you have not been making your monthly payments on time, it is quite likely that you would have already damaged your credit score. When you take on a new debt consolidation loan, your credit score will take a hit. However, when you repay all the card dues and wipe them clean, your credit score will automatically improve as the credit utilization ratio will have dramatically improved. Additionally, when you make the monthly payments on the debt consolidation loan on time, you will see that over time your credit score has improved significantly. This is in direct contrast to your credit score becoming severely negatively impacted if you settle your debts or file for bankruptcy. The details of the debt settlement remain for as long as seven years on your credit history and make future borrowings difficult and more expensive.
Will Consolidating Debts Prevent Harassment By Debt Collection Agents?
If you have missed making payments on your credit cards and your card accounts have been classified as delinquent, it is quite likely that debt-collection agents would have started calling on you. If you don’t want the harassment to continue, the best way is to immediately secure a debt consolidation loan and use the money to settle all your credit card dues in full. You should request the card companies to inform their collection agencies that the dues have been repaid. You may also pay the collection agent if the card issuer so directs but you should carefully check their credentials and obtain a proper receipt for the money paid to them.
Debt consolidation is a simple, quick, and practical way of getting on top of your credit card debt. However, your actual financial circumstances will dictate what you should be doing to tackle your debt problem effectively. Getting guidance from a lawyer experienced in debt relief will ensure that you choose the best option.