Consumers could face a high debt load if they fall behind on payments or fail to settle debts in a timely manner. They could face serious financial hardships and destroy their credit ratings. There are several options for settling the debts, but there isn’t a one-size-fits-all solution for all consumers. Debt consolidation loans are among the debt settlement choices that could combine all debts into one account and monthly payment. Reviewing options for settling and managing debts shows consumers how to eliminate debts and avoid further financial issues.
Table of Contents
How Debt Consolidation Loans Work
Essentially, a debt consolidation loan is the combination of several debts rolled into one loan, and the consumer pays one monthly payment instead of several. They could also reduce the total interest they pay on all their debts overall. Comparing the interest rates for the managing debts and the projected interest for the loan shows the consumers if they generate savings on interest payments. This is highly beneficial for any high-interest credit card payments and could cut the interest the consumer pays in half. Consumers start by looking for debt relief through their preferred lender and apply for a managing debts consolidation loan now.
Getting Debt Settlement Offers from Collection Agencies
Collection agencies purchase overdue accounts from creditors and add fees to the balance. Next, they send a notification to the account holder to inform them of the transfer. The consumer must pay the collection agency to settle the debt. However, most collection agencies are willing to accept a settlement offer. Consumers negotiate with collection agencies to settle the debt through the offers. Some managing debts settlement offers are 50% lower than the original debt balance. This could make paying the debt off easier for the consumer and reduce their debt volume immediately.
Negotiating with Creditors
Account-holders negotiate with creditors to arrive at a lower balance, too. For example, if they have overdue medical costs, the consumer could negotiate with their creditors and reduce the total balance. Some doctors may accept the portion that the patient’s medical insurance paid instead of requiring the extra 20% from the patient. This could help individuals lower their costs and avoid generating new negative listings on their credit history.
Creating a Fine-Tuned Budget
Budgets are a great way to reduce debts and save money. The consumer starts with their total monthly income and the total amount they pay each month for living expenses and monthly payments. They divide their expenses up by pay periods or the due dates for the debts. This prevents them from falling behind on these expenses and facing extra charges. Next, they eliminate any unnecessary spending that has nothing to do with living expenses or current monthly payments. The amount they could save shows them how much they could apply to their current debt volume.
A budget could help them pay off smaller debts and eliminate them quickly. After they settle the smaller debts, the individuals could start adding a little more each month to their larger debts. They could reduce the amount of time they pay on their debts and decrease the interest significantly.
Borrowing from a Whole Life Insurance Policy
Whole life insurance policies enable individuals to accumulate benefits for paying their final expenses and giving their family financial support. Unlike a term insurance policy, the policyholder can borrow money from their policy for financial emergencies. They could use a portion of the total benefit amount to pay off their debts and recover financially. They will have to pay back their policy, but they are essentially paying themselves.
Borrowing Money from Your Retirement Plan
The type of retirement plan defines how much and when an account holder could borrow money from the account. As soon as the individual removes money from the retirement account, they will face increased tax implications because they didn’t pay taxes on the money when it was deposited. The individual doesn’t have to repay the plan unless they want to replenish their retirement funds, and it could help them eliminate debts quickly.
Liquidating Some Assets
The liquidation of assets could give the individual the funds they need to pay off their debts. If they approach liquidation on their own, the individual decides what assets they sell and what creditors receive the proceeds. If they file for chapter 7 bankruptcy, the court selects the assets, and the court-appointed trustee determines how the debts are settled. Selling their own assets also gives them control over how much the buyer pays for the assets, and the individual won’t feel as though they have generated a loss by accepting the payment from the highest bidder in an auction. Any leftover proceeds remain in the consumer’s hands.
Filing a Bankruptcy Claim
Bankruptcy should be a last resort, and the consumer should be in dire financial straits before filing. With chapter 13, the consumer enters into a repayment plan that is approved by the court, and the consumer must make all monthly payments. If they miss a payment, the court could discharge their case, and the individual will be responsible for all debts in the claim immediately.
Chapter 13 could last between three and five years, and the individual must use all disposable income for debts. The court monitors their income and enforces the guidelines of the bankruptcy claim. Any deviation from the repayment plan could lead to a discharge of the claim.
High debt volumes present consumers with financial crises that could be catastrophic. Finding the best solution to manage their debts helps the individual avoid additional fees and finance charges. If they consolidate the debts into one loan, they could pay the original creditors off and improve their credit ratings. However, lenders require consumers to qualify with minimum credit scores and income levels.
In addition to debt consolidation loans, the consumers could tap into debt settlement offers to pay smaller debts faster. They could borrow money from existing financial accounts, too, and they could repay what they borrow to prevent a loss. Reviewing options for settling debts shows consumers the best strategy for their high-volume debts.