Let me tell you a story. I have a friend who ran up a whole bunch of bills, which he eventually learned he had no earthly way to pay it off. He had too big an auto loan, several personal loans and too many credit card bills. He told me he felt as if he had gone to debt hell.
When my friend determined how much trouble he was really in, he went to a consumer credit counseling agency for help. His counselor went over all of his finances – his income and debts – and helped him develop a payment plan. He offered to contact all mu friend’s creditors to see if he could get his interest rates reduced, which could help him get out of debt in maybe five years. However, he would need to give up all his credit cards and was told that if he missed even a single payment, his plan could be invalidated, which could leave him in more of a mess than before.
My friend also considered filing for a chapter 7 bankruptcy until he learned how much of a blot that would put on his credit record for 10 years. He also found that if he did declare bankruptcy, he probably wouldn’t be able to get any new credit for several years and when he did, he would have to pay very high interest rates. Plus, bankruptcy will not dismiss some debts such as his way too large auto loan.
A bank to the rescue
He finally decided to go to a local bank and talk with a personal banker. Her suggestion was for him to take out a debt consolidation loan and pay off all his creditors. Since his total debt less than $10,000, he was able to get an unsecured loan so he didn’t have to use his house as collateral. Had he owed more, he would have ben forced to get a second mortgage or a homeowner’s equity line of credit to pay off his debts.
Why a consolidation loan made the most sense
A loan made the most sense for my friend because it consolidated all of his payments into a single one and at a lower interest rate than he had been paying. In fact, his loan payments turned out to be about half of the total monthly payments he had been making on his various debts.
My friend found that there were also downsides to paying off creditors with a debt consolidation loan. The biggest was the term of the loan. It took him seven years to pay it off, which is a very long time. Those were also seven years during which he had to be a very good money manager and not take on any new revolving debt as that could have gotten him into even more trouble. The second biggest con of a debt consolidation loan as my friend learned is that it does nothing to reduce debt. It just moves it from one set of creditors to a new one.
He wishes he had known about debt settlement
The one regret my fiend says he had about how to pay off creditors with a debt consolidation loan is that he didn’t know about debt settlement. He feels it would have been a better option. This is because debt settlement can actually reduce the amount of debt owed instead of just transferring it from one set of creditors to another. Reducing the amount of your debt means getting out of debt faster – another important benefit of debt settlement.
Before you pay off your creditors with a debt consolidation loan, call us so we can teach you about debt settlement. My friend and I both firmly believe it could be your best option for dealing with debt.