Debt Settlement Programs Or Bankruptcy: How To Choose Wisely

When managing debts becomes too much, a choice needs to be made. Should a file for bankruptcy be made, or should one of the debt settlement programs be applied for? This is a choice that needs to be thought over deeply before any move is made.

The reason this decision is not that simple is that there are serious repercussions to choosing bankruptcy, and even if that is the only logical option, there are a number of bankruptcy chapters under which debtors can file. Increasingly, a Chapter 13 bankruptcy plan is becoming the preferred option, but other chapters are 7, 11, 12, and are just as efficient in ridding oneself of debt.

However, while debt settlement is more expensive and less damaging to credit histories, they do not always turn out to be the saving grace that applicants would like them to be. So, when clearing existing debts, which of the two is the right one to choose?

Check Your Own Status

The first step in ascertaining the best choice is not to look at the options, but to look at yourself. Depending on your credit and financial status, either bankruptcy or a debt settlement program will provide the most effective solution. And reading your credit report is the starting point.

Once the true extent of your debt problem is confirmed, it is possible to work out what the right debt relief option is, based on what kind of deal is affordable. When debts are slightly greater than income, then a Chapter 13 bankruptcy plan is likely to be the right choice. When it is very much greater, Chapter 7 might be the most plausible choice.

However, if there is still some income more than debts, then a settlement deal is likely to be affordable. The complication is that, while a settlement involves clearing existing debts for a fraction of their worth, it still requires a lump sum payment to complete the deal. Saving up that lump sum is the problem.

Terms of Bankruptcy Chapters

There are four chapters to the Code of Bankruptcy that any bankruptcy case can be filed under: chapters 7, 11, 12, and 13, The key differences between them relate to the extent of the poor financial situation an applicant has, and the likelihood that a debt settlement program cannot be approved.

Chapter 7 is filed by those seeing liquidation or straight bankruptcy where debts are completely written off. The other options relate to reorganizing debt, with Chapter 11 filed by businesses seeking to reorganize their debt, but not to liquidate. Chapter 12 is applicable to family farmers seeking to reorganize.

However, a Chapter 13 bankruptcy plan is sought by individuals who earn the average income or higher in the state the case is filed in. The court decides on the terms of the debt reorganization, and continuously monitors the repayment progress. So, clearing existing debts is done under strict conditions.

Bankruptcy or Settlement?

The basic deciding factor is cost, with the fees associated with a debt settlement program almost double that of the costs of filing for bankruptcy. But there is also the matter of monthly repayments and other terms associated with the type of bankruptcy. If the Chapter 13 bankruptcy plan is more affordable than the settlement plan, it makes sense to choose the former.

But the consequences of the decision need to be considered too. For example, clearing existing debts through a settlement plan will reduce a credit score by around 50 points, but bankruptcy cuts it by a minimum of 200 points. And it will be on your record for 10 years, while with a settlement plan, credit is returned after 2 years.

How Debt Consolidation Loans With Bad Credit Can Solve Credit Card Debt

The prevalence of credit cards in society means that it is almost impossible to get by without one. From buying low-cost flights to getting the biggest bargain on ecommerce websites, the credit card is basically an essential tool of modern living. But conversely, it is also one of the principal contributors to personal debt, prompting many to search for debt consolidation loans with bad credit.

For millions of Americans, the pressures created by credit card usage can be extremely high. Consolidation is seen as the most proactive way to set about dealing with the debt, and getting back on financial track. But securing consolidation loan approval despite having bad credit scores does depend on satisfying certain conditions.

The big question, however, is whether or not taking out a debt consolidation loan can really make any difference to the pressure created by credit card debt. Thankfully, the answer is that it can.

How Consolidation Clears Credit Card Debt

Unfortunately, it does not take long for the minimum repayments due on a credit card bill to become too much to handle. With the interest rates as high as 21%, just 2 or 3 missed payments can almost triple the size of the minimum payment. But even when seeking debt consolidation loans with bad credit, the benefits are clear.

Consolidation involves combining all of the credit card balances into one sum, then taking out a single loan to repay the amount in one go. It means that, not only is only one debt to be repaid, but that only one interest rate is charged, thereby reducing the overall cost of the debt and making repayments much more affordable.

Securing consolidation loan approval with bad credit requires some effort, but the effort is certainly worth it. After all, with credit card balances paid off, credit scores are increased. This then means any future loan and credit card application is more likely to be approved with good terms. But how can a debt consolidation loan be secured with bad credit?

Why Bad Credit Does Not Matter

Many people think that applying for a debt consolidation loan with bad credit is doomed to failure. After all, the size of the loan is often quite big – perhaps $10,000 – and the chances of success seem to be minimal.

But the fact is that low credit scores are actually not very important at all. Lenders are much more interested in other issues, such as affordability. They know that a credit score is only a reflection of past actions, but reveals nothing regarding a current ability to repay. Therefore, regardless of a credit rating, securing consolidation loan approval is always possible.

In terms of proving affordability, issues like employment status and income are important, as is the state of the debt-to-income ratio that the applicant might have. Of course, since a debt consolidation loan is designed to clear debt, lenders are more open to approving those applications.

Finding The Best Lender

The task of finding the right lender is a little complicated when attempting to secure a debt consolidation loan with bad credit. While the low credit score does not prevent approval, the terms of the loan might not be so good. So, finding a lender that offers good terms is important.

Online lenders tend to offer the best deals usually, and because they specialize in bad credit lending, securing consolidation loan approval is not difficult with them anyway. Their terms usually mean a lower interest rate and, most importantly, a longer repayment term. That way the monthly repayments are kept low, ensuring the debt consolidation loan is the most affordable possible.

Debt Consolidation Loans: The Answer To Mounting Bills And Debts

Nobody likes to receive bills, even at the best of times. But when debts and expenses are mounting faster than we can keep up with, the common bill can cause considerable problems. Unless dealt with quickly, the situation can eventually become too much. So what is a solution? Debt consolidation loans for one.

There are several steps that a bad credit borrower can take to set about addressing their debt situation, but not all of them are effective. However, clearing existing debts in one go makes a hugely positive impact on it – though it is important to realize that consolidation results in the debt being replaced rather than removed completely.

So with that in mind, how beneficial are consolidation loans when it comes to dealing with mounting debts? Can it really be the perfect solution that everyone claims it is? In almost every way, the answer is yes.

So What Is Consolidation?

Understanding what consolidation is and how it works is the first step in working out if it will be as beneficial as hoped. The basic idea is that everything (in this case all individual debts) are gathered together into one sum and paid off using a single debt consolidation loan.

It might seem like simply replacing the debt with a new one, and that is not a million miles from the truth. However, the single loan has a single interest rate and is therefore less costly than the combined interest paid on 5 or 6 individual loans with different interest rates.

Also, by clearing existing debts in this way, there is a chance to better structure the debt repayment schedule. So, while the combined monthly repayments on 6 loans might have been $1,500, the consolidation loan can have repayments of $750, depending on the terms of the loan.

Factors That Make The Loan Ideal

Of course, it is the terms of the loan that actually makes a debt consolidation loan affordable or effective. So, it is important to choose a loan deal that is right for your specific needs. But what are the particular factors that applicants should look out for?

The first is interest rate, which obviously is a chief concern for all loan applications. Keeping the rate as low as possible is important. This is where going to the right lender is effective, with online lenders especially charging very competitive rates even when lending to bad credit borrowers.

But to make this method of clearing existing debts as affordable as possible, the term of the consolidation loan is extended to beyond the normal period. For example, instead of a 5-year loan, a 10-year loan is granted. And when the debts are large ($50,000 or more), the term can extend to 30 years.

Qualifying For A Consolidation Loan

This not a particularly difficult task to complete, with no surprises to be wary of. Applicants seeking a debt consolidation loan need to meet the same criteria needed for every other loan. So, as long as they have a full-time job to show a means of making the repayments, there should be no problem.

However, there is a loan limit set by the debt-to-income ratio, which restricts the amount to be committed to loan repayments to just 40% of your income. This means that an income of $3,000 has a restriction of $1,200 in total debt repayments.

After clearing existing debts, this should not be a problem but the repayment limit affects the size of the actual loan – so keep this in mind too. And remember that a consolidation loan does not necessarily have to clear all debts. Even clearing half of the debt can make a huge difference to the borrower.

Debt Consolidation Loans For Bad Credit Borrowers: Viable Solutions To Real Problems

At some point, we all have to deal with stressful financial situations. As time goes on, our creditors become more demanding, and the added interest on late loans and credit card payments, build up to a level that makes it even harder to stay on top of things. But with the availability of debt consolidation loans for bad credit borrowers, there is a viable escape.

The chief problem for anyone with financial difficulties is cash flow, with repayments falling behind only because the cash was not available at the required time. The logical solution, therefore, it to restructure debts to ensure the repayment schedule is simpler. This can be done by clearing existing debts with a single loan, then repaying it.

And that is exactly what a debt consolidation loan is for – buying out the balances of existing debts to allow the overall debt to be restructured into something more manageable, and more affordable. But is the deal really as viable a solution as it seems?

Consolidation As A Solution

The good news when seeking debt consolidation loans for bad credit management is that opting for consolidation offers more benefits than simply buying out existing debts. In reality, the chief motivation when seeking these loans is to clear debts, but there is also an opportunity to set things up for a better financial future.

For example, since all of your debts have been brought together and bought out, it means they have been paid off in full. This fact is noted in your credit report, thus ensuring that your credit score is increased. So, as well as clearing existing debts, consolidation ensures better loan terms in the future.

Also, while all debts are basically replaced by a debt consolidation loan, the new structure should mean that the size of monthly loan repayments falls significantly compared to the combined repayments of the original loans. This means that the debt-to-income ratio is improved too.

The Consolidation Terms To Seek

So what are the terms that should be secured to make the whole exercise worthwhile? Actually, besides the usual interest rate concern, there is only one real issue when applying for a debt consolidation loan for bad credit borrowers to consider carefully.

The term refers to the lifetime of the loan, with the basic idea being the longer the term the smaller the size of the repayment each month. For example, the number of repayments in a 3-year loan is 36 (36 months), to the principal borrowed is divided by 36. If the term is 5 years, the principal of divided by 60.

If the debt consolidation loan sum is $10,000, the difference is $110, which is a significant sum to free up, thus lowering the pressure to make the necessary repayments. So, clearing existing debts and saving money can actually be done simultaneously.

Where To Get A Consolidation Loan

A key part to securing the maximum benefits from a debt consolidation loan for bad credit borrowers to enjoy is to approach the right lender. Like all financial products, there are different terms available from different lenders.

Most lenders offer some kind of debt consolidation loan, but the interest rates are usually quite high and the loan limit is fairly low. This is because the applicants are bad credit borrowers. Online lenders will offer better terms than a traditional lender, but the same restrictions apply.

A professional debt consolidation company is ideal when the size of the debt is very high. They take the task of clearing existing debts into their hands, and in return they withdraw set payments from your account over an agreed period of time. They will charge a fee, but they also take control of finances, so the risk of failure is practically nil.

Why Using Debt Consolidation Loans For Bad Credit Improvement Is The Route To Financial Recovery

There is nothing simple about managing debts, with different loans having different repayment schedules and different interest rates. The result is a complex debt repayment pattern, and rarely will someone facing the challenge emerge successfully. But the availability of debt consolidation loans for bad credit improvement means that even bad credit borrowers have a chance to put things right.

In many respects, consolidation is the superior option amongst the range of possible solutions. Through consolidation, the job of clearing existing debts is achieved in one swift move, and the benefits can be considerable.

But as is the case with all financial matters, it is essential to satisfy all terms and conditions before it becomes possible to get a debt consolidation loan. Of course, since the purpose of the loan itself is to aid those in poor financial positions, approval is more likely. But what are the issues that need to be considered?

Consolidation Loans: The Benefits

Arguably, the first issue to clear up is whether or not the move will be of any real benefit. It may seem that a borrower is robbing Peter to pay Paul, but in fact, there are real advantages to enjoy. Bear in mind, getting a debt consolidation loan for bad credit improvement purposes means that the entire debt is cleared. This means an immediate improvement in the credit score is registered.

Taking on this new debt does not mean that the pressure remains despite clearing existing debts. The terms of the consolidation loan are very important, but basically, replacing 4 or 5 individual loans with a single loan means lowering the total interest paid each month, and reducing the monthly repayment sum by as much as 50%.

So, the result of taking out a debt consolidation loan is that the troublesome debts are cleared, extra cash is freed up and the overall financial pressure to face is reduces considerably.

Consolidation: Other Options

It would be incorrect to claim that seeking a debt consolidation loan for bad credit improvement is the only option that those of us with acute debt problems to consider. There are others, but while they may have their advantages, there are also some factors that dictate they are not so good.

The most obvious options when facing mounting debts is to file for bankruptcy. This can be useful in that the total debt is wiped clean with sometimes 0% of the actual sum paid. Clearing existing debts in this way means real savings are made, but a credit restriction can last at least 12 months, and the negative impact on your credit record will last for years.

Another option is to negotiate a debt settlement agreement. This can also result in savings, with anything from between 70% and 30% of the debt repaid in exchange for clearing the balance. This has less severe consequences, but cannot match the debt consolidation loan for its long-term impact.

The Consolidation Company

Debt consolidation offers so much, but securing the best terms is important. With relation to securing a debt consolidation loan, for bad credit borrowers to make the most out of the opportunity, they may need to hire a professional company to handle matters.

The chief advantage with hiring a consolidation company is that the complexities of dealing with creditors is avoided, and when the debts involved are extremely high, their disciplined approach can make a huge difference. And extra charge is involved, but when nothing else has worked, it is the perfect solution.

Clearing existing debts in this way means the debts are paid up, and the company then controls your finances to ensure they are repaid. Since the debt consolidation loan is in their hands, failure to improve your financial position is extremely unlikely.