Have many debts – debt consolidation is the best choice

When you have a lot of debts it is difficult to manage them. And very often you cannot afford sum of money you have to pay. In these cases people start to panic. There is a lot of information in the internet that frightens people. If you don’t pay your bills, scary collection agency will come and will take all your money and property. In facts it is dangerous to have debts and you really can lose your property, but only if you do nothing. First of all you should understand that company you owe money, wants to get them back, and they don’t need your house or car because it is difficult to sell it and get necessary amount. There are a lot of programs that were created to help people like you to handle their debts.

How to pay off debt

Let’s explore the most effective:

First of all it is interest rate arbitration. Also this program is known as consolidation, you choose a third party and it negotiate with your creditor to allow you lower interest rate. Also you will be able to combine your bills into one. There are following benefits of using consolidation: you will get low interest rate, you will be able to make single monthly payment, not several, and you will be able to improve your credit score.

Debt management is also very popular solution. It meant that you have to deal with the company which will help you to pay back your debt and create a budget. Advantages are following: you make lower payments; fees that you pay when you can’t meet terms of payment can be waved off; and company will help you to manage your multiple bills.

Debt settlement is the next program. According to it you deal with settlement company. It contacts your creditor in order to lower your pay off amount by 40-60%. Your benefits will be following: lower interest rate and your balance will be cut.

Chapter 13 bankruptcy. Court will control your debts payment plan. In this case creditors will reduce interests on your payments, your principal balance will be cut and you don’t use your assent to pay off the debt.

And at last chapter 7 bankruptcy. If you choose this program, you hand over your assents to the bank representative. They will be sold out and your debt will be paid off with help of this money.

Self repayment plan. You will have to develop a plan how to manage your budget in order to pay off outstanding card balance. You won’t use any professional help. It is difficult to keep this plan but it is rather effective and you don’t spend additional money for mediator.

The last one is ostrich method. Nobody will advise you to use it. You don’t need to do anything, you don’t pay off your bills, just ignore them and hopes that it will disappear. In this case you may deal with collection agency or ruin your credit history.

I want to pay special attention to debt consolidation. This method will allow you to save more. Do you know how this system works? In general words it is a situation when you have several credit account accounts and you have to pay for each of them every month. When you apply for debt consolidation, you combine your accounts into one and your interest rate becomes lower.

Let’s see how it works.

For example you have three credit cards and medical bill.

Outstanding balance on credit card 1 is $25000 and your APR is 15%.

Outstanding balance on credit card 2 is $40000 and your APR is 20%.

Outstanding balance on credit card 3 is $15000 and your APR is 13%.

You owe for your medical bills $10000 and your APR is 12%.

In this case your average percentage rate = (20% + 15% + 13% + 12%)/4 = 15%.

When you take part in consolidation program, your third party can negotiate to:

Credit card 1 APR is 11%

Credit card 2 APR is 16%

Credit card 3 APR is 10%

Medical bills APR is 9%

Now your average interest rate = (11% + 16% + 10% + 9%)/4 = 11.5%

Let’s see how much you can save every year. ($25000 + $40000 + $15000 + $10000)*(15% - 11.5%) = 90000*3.5% = $3150

Debt consolidation benefits

Here you will find more benefits that you get choosing debt consolidation program.

1. Rate reduction. As it was described in previous chapter when you combine all your bills, your mediator can negotiate with a creditor and offer you lower interest rates.

2. Debt repayment plan. Your creditors or collection agency (if your debt had already been sold out) will offer you this plan. According to it when your interest rates are lower, you pay less every month and now you can afford to make at least minimum payment. Or you even will be able to cover your principle balance and maybe some interests.

3. Single monthly payment. Now you will be able to make one payment every month instead of several payments for every bill. That your funds will be distributed between your creditors.

4. Reduction of late fees. If you can’t meet terms of payment, you get penalties, late charges fee that add value to your debt. After negotiation your creditors may reduce this payments or eliminate them.

5. Get debt free faster. If you use average credit program, it takes you about 20 years to pay off your debt. But when you choose debt consolidation, you can do it in 4-6 years. It is possible if you may a little bit more that minimum payment every month. And after consolidation when your fees are lower, you manage to pay back total amount faster.

6. Get rid of collection calls. When you join to debt consolidation program, your creditors and collection agencies are prohibited to contact you.

7. Improve your credit. When it is easier for you to meet payment terms, you will be able to re-establish your credit history. Timely payments and paying off your debt in time will show how responsible you are.

8. Free debt counseling. Every company that provides you with debt consolidation service offers free debt counseling. They will explain you your situation and will describe all available methods to correct it. And you will choose the most appropriate one.

It is difficult to manage your debts, but you always can contact specialists that will help you in this situation.

What happens to people who do not pay their credit card debts?

“What will happen to me if I do not pay my credit card debts?” This is a very widespread question that a card holder can ask. Usually such questions arise during hard economic circumstances. Many people have used credit cards at least one time in their lives and continue using them very often. Some people have at least 3 or 5 credit cards in their wallets. Credit cards are very convenient to use. They guarantee financial freedom and safety. These cards allow us not to carry too much cash everywhere. But very often people are faced with a number of problems that can occur while using these cards. Unpaid balances continue rising constantly even if you have some problems with your income. It is very important to take some reasonable steps towards paying off your credit card debts. Usually credit card companies can make a settlement and agree to a repayment arrangement. It is very important to show them that you are trying to do something with the occurred situation and do not ignore the problem.

Let us discuss the main consequences you can face if you are not able to pay your credit card debts in time. You have to develop your own plan in order to deal with your debts. You should take this problem very seriously as it is very hard to get out of this delicate situation. Do not think that this problem will simply disappear of its own accord. Be ready that a credit card company will do its best to get money back by all possible means. Remember that if you continue ignoring credit cards payments, it can lead you to serious long-term financial consequences. You can take advantage of the following pieces of advice, but also pay attention to the recommendations of financial advisers or legal councilors.

1. You will get reminders from your creditor. Usually when you stop paying your credit card, you will receive different kinds of reminders from your creditors. Firstly, you will get continuous phone calls. These calls will become more frequent, if you have not still made any payments. Usually collectors make their phone calls 5 to 10 times a day on your mobile phone, home phone or at work. They can find telephone numbers of your neighbors, colleagues and members of the family although it is illegal to act like this. At the same time you will probably get letters by mail reminding you to repay the debt and maybe suggesting some settlement offers. These are the ways of psychological pressure in order to make you pay them the money back.

2. Your delinquent account can be sold to a collection agency. If you continue ignoring the payments for over half a year, then you will get calls from debt collection agencies. This happens because after this period of time some banks usually sell your accounts to a third party which is a collection agency. Such agencies have rights to call you any time of the day in order to demand for the payment. Now it is their responsibility and interest of convincing you to pay the credit card debt you are owned. The collection agency is not a part of the bank and from now on everything they collect from you becomes their profit.

3. Legal actions. Those banks who do not sell your accounts to any collection agency can take legal actions against you. It is a last chance for creditors when your debt becomes too delinquent. They can blacklist your account that will affect your future financial status. When your debt is not excessive, you probably may not be sued for this. The only thing that can be done by this particular bank is that you are not allowed to take advantage of any other facilities of this bank. But if your balance is excessive, the bank has all rights to take legal actions against you to get their money back. If a credit card company or a bank wins the case, they can proceed for wage garnishment or put a lien on your house or other property in order to get their money back. However, many companies try to avoid this process as it usually takes too much time. Besides, court action is a bad publicity for a credit card company. But if the case is at a critical stage, this is the most obvious scenario for the bank or a credit company to recover their money.

Please note that the longer you postpone payments, the more debts you have. As a result you have to pay more and more additional charges such as over credit limit charge and late payment charges. Remember that all these charges will grow fast on your balance on top of all your existing fees and interest rates. Also, not paying credit card debts can really badly reflect on your credit history. Because of this you will probably have some difficulties to get a mortgage, car loan, study loan or any other personal loan when you need it. Also be aware that some companies used to check the credit history of their applicants for a job. So not paying your credit cards debts can play a low-down trick on you if you are looking for an employment. Nowadays you can get an easy and quick access to your credit history. You can take an advantage of the www.freecreditreport.com site that is considered to be a part of a family of online consumer credit reporting sites that belong to Experian Company. You can check your credit report and credit score and also to protect yourself against identity theft.

Please remember that you can face all the above mentioned consequences if you do not pay your credit card debts. It is always better to find some solutions to solve your problems than to run away from them. Be smart in arranging your credit card spending in order to avoid financial problems in future. But if you have found yourself in a credit card debt, you should stay calm and get yourself in hand. Your family and your friends must be well informed about the occurred situation so that they can offer you some help. Do not forget to consult experienced financial planner to help you to resolve your temporary financial problems.

Improve your credit score!

Nowadays it is very important to know everything about your credit history and credit score. Let us find out what do these terms mean and how to build a better credit history. Be aware that if you have ever had a credit card or taken a loan or insurance, then there is a file about you. This file is usually called a credit report. This report contains all personal information about you, how you manage to pay your bills, whether you have been arrested or sued for something, your past borrowing, repaying, late payments and bankruptcy. It is a good way for creditors, lenders and others to find out about individual’s credit worthiness, in other words, individual’s capability to repay a debt. It is important to provide exact personal data for credit bureaus. When you need a credit, lenders usually tend to review credit reports in order to find out how timely past debt obligations have been made. Lenders want to see that past payments are made on a monthly basis. In other words, a credit report is a detailed summary of all your recent financial transactions - all this makes up your credit score.

Remember that if you have a good and accurate credit report, it will be easier for you to get different kinds of loans and the lowest interest rates. The lower interest rate is the smaller are monthly payments.

Nowadays you can see a lot of advertisements that promise to erase negative information on your credit report. Please note that the companies who advertise these services simply cannot deliver such services. Only you, your efforts and an accurate plan to repay all your bills and debts can improve your credit score.

You should take this information very seriously as a lot of things nowadays depend on your credit history. The first thing you should do is to get a copy of your credit report and to study it very carefully. The question arises where can a person get his credit report and credit score. There are three major credit bureaus that can provide you with this information such as Equifax, Experian and TransUnion. These three bureaus generally use the same information, but you will probably get slightly different reports. Remember that your credit score changes basing on the information that is reported each month about your financial transactions. You can improve your score if you know exactly what factors one or another bureau uses to determine your score.

As you have already understood your credit history and your credit score play great part in your personal financial situation. It is not enough just to know your credit rating, you need to know how to increase your credit score. Let us discuss the main things you should do in order to increase your personal credit score. But be aware that this process is rather continuous and you should apply some efforts to achieve positive results.

Review your credit report and check it regularly. It is better to get several credit reports in order to compare them. Use the services of three major reporting agencies mentioned above. Then you should correct all the visible errors: late payments, incorrect credit limits, etc. There could be some errors in these reports, so you should be very careful.

You should try to pay all your bills and clear all your debts on time. Remember that it is necessary not only to make all your credit card payments, but also other pending bills on time. For example, if you are too often late with your utilities bills, a company that provides you with utilities services can report you to the credit bureaus. Do not forget about your obligations and you will have no problems with your credit score. Note that delinquent payments can have a negative influence upon your score and on your financial status in general.

Try to make the minimum payments. If you have debts, it is better to make at least the required minimum payments. Remember that if you do not even pay the minimum sum of your debt, it is considered to be a late payment.

Contact your creditors. Do not forget to contact your creditors in order to inform them about the occurred financial difficulties. Usually they try to help you in some ways, or at least they can put off the final payment or set a new paying agreement. If you continue paying according to this new paying schedule, you will have no problems with your creditors and very soon you will settle with them. This will not improve your situation immediately, but the efforts to pay all your debts on time will have the necessary effect.

Pay close attention to your credit cards. A good credit score greatly depends on paying down all your credit card debts. A lot of credit card companies usually report your limits to the credit bureaus. Keep your balance as far as possible from the limit and you will never have problems with your credit score.

Do not open new accounts. If you have certain problems with your credit score, it is better to keep away from opening new accounts. This can affect greatly on your score. But at the same time opening new accounts and paying them on time can greatly raise your credit score in the long term. So if you are self-confident, you can try to reestablish your credit history and open new accounts.

Using the above mentioned tips, you can easily increase your score in a month or two. As you have already understood it is not an easy task to do, but it is quite possible. There are no general rules that can suit to everyone, but there are different steps you can take in order to resolve all your financial problems. You should also not be afraid to apply for any help. Remember that you are not alone and there are people who are ready to help you with your financial difficulties.