Debt Consolidation

Simply stated, debt consolidation is the process of combining all of your debts into one account. It usually takes the form of refinancing a home to access equity in order to pay of other debts. For example, you may have an existing loan with a balance of $3,500, a credit card balance of $6,000 and a store card balance of $600. These could all be consolidated into one loan of $10,100. Consolidating your debt will generally lower your monthly payments, through lower interest rates, an extended term, or both. Unfortunately, unless you have good credit this option may be more difficult to arrange. Bankruptcy could be a better option, depending on your financial situation. A qualified bankruptcy attorney will examine all your options and help you decide what is best for you.

How will a debt management program help me?

A debt management program is a plan to get you out of debt. It creates a simple program that allows you to make a single monthly payment that is in turn paid out to your creditors. Sometimes, participating creditors will reduce your monthly payments. Once you establish a payment history, some creditors might even reduce or eliminate interest or late charges. If that occurs, more of your payment will go toward reducing your debt and you will get out of debt faster. It takes patience and discipline to participate in a debt management program. If you don’t have adequate income to repay your debts or lack patience and discipline, contact a bankruptcy lawyer to review your options.

Will a debt management program stop collection calls?

Normally, collection calls will stop after your third consecutive payment on the debt management program. Should you receive collection calls after your third payment has posted, contact your program administrator with the name, account number and contact information for the creditor. Allow them time to investigate the matter and determine if any action might be taken against the creditor. Just remember, your creditor may be a large financial conglomerate with many departments who may not have been notified about your participation in a debt management plan. Filing bankruptcy will create an "automatic stay" that stops creditors from contacting you as soon as the court notifies them of the filing.

How will a debt management program affect my credit?

If you are having trouble paying your bills, most likely you credit report already includes late or missing payments. Participating in a debt management plan could improve your credit rating if you are able to make consistent on-time payments. If you have been late in the past, most creditors will report you as "current" as long as you make your payments on time. If you have kept up on the payments on your debts, sending reduced payments under a debt management plan or getting interest concessions might affect your credit rating. Lenders may decide to not issue you new credit while you are participating in a debt management plan.

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