Debt is one of those things that can creep up on you so fast. Dealing with accumulating debt can be overwhelming and emotionally taxing. In fact, an article published on WebMD.com revealed that debt related sickness is real because of the stress associated with it.
Whether it is crippling mortgage debt, credit card balances or medical debt, these financial obligations can wear you down. Debt consolidation is designed to provide relief by combining existing debts into a manageable single monthly bill. This plan also comes with a renegotiated interest rate. Many outstanding debts are hard to keep track off, and combining them into one debt makes it easier to manage. Debt consolidation has numerous benefits, but it also comes with risks. It is important to fully understand the drawbacks and what you to stand to gain, before deciding if this is the best option for you. This article takes an in-depth look at debt consolidation to help you arrive at an informed decision, but first, we explore ways to help you deal with your current debt situation.
Practice Restraint When Using Credit Cards
Accumulated credit card debt is bound to get you in a pit of debt. According to the data published on ValuePenguin.com Americans are making a lot of wrong decisions when it comes to the use of their credit cards. These mistakes are costing them a huge amount of money.
Credit cards are good, but they create an illusion of money that one does not actually have. In light of this, the user must practice restraint. If you fail to make any payments in time or go above your limit, your actions can attract a higher interest rate. You need to do an honest appraisal of your credit card spending. If you find that you have been spending recklessly, replace the credit card with a debit card. You can link the card to your checking account, this way, you are able to keep track of your purchases without having to pay for late fees or interest.
Realize You Need Help
Denial that you have bitten off more than you can chew with regards to debt will only plunge you into more debt. Some people wait too long before admitting they have a debt problem. Just like getting help for addiction, the first step is to accept there is a problem, and you need help.
Not all debts are the same. This means that not all approaches you have heard or read will work. People get into deeper debt problems by listening and adopting methods used by their family members and friends. To be able to get out of debt, you need to look at your situation in a unique manner.
Debt accumulation does not happen overnight, in the same respect, you need to get help and a plan to help you regain financial freedom. Borrowing to get yourself out of debt will only put you in deeper debt. If you have different debts, consolidating them into one, may be your best bet.
Explore the Options available
Debt consolidation companies are not created equal, they all have different policies and terms. Your primary concern is to find a provider who will consolidate your debts at a good rate. This is not a decision that should be made in haste. It is wise for you to conduct a comparative analysis, and find out the company best suited to help you. We explore and narrow down different options such as Prosper, Lending Club, and the National Debt Relief, so as to help you make an informed choice.
Prosper is an online site that offers debt consolidation services, among other financial instruments. It offers individuals a platform to consolidate all the loans into a single Prosper consolidated loan. Prosper’s debt consolidation loans come with a fixed rate. The principal amount borrowed decreases as one makes the monthly loan repayments. This means that people in debt can put a stop to spiraling debt. Their online electronic system allows customers to manage the loan consolidation process directly and with ease. There are various requirements that must be met for one to be eligible for a loan application. Applicants must:
Be residents of the US
Have a minimum FICO credit rating of 640
Have bank accounts
Have a social security number
Once these requirements are satisfied, Prosper determines the lending rate using the following factors: loan term, expected loss, competitive and economic environment and Prosper rating.
Lending club is another online marketplace platform that connects borrowers and investors. They offer lower rates as compared to traditional lending banks. Lending Club and Prosper both have debt consolidation programs, but their policies are terms differ. For starters, Lending Club is not as lenient as Prosper when it comes to qualifying people for loans. This stringent policy is ideal for investors, but not very favorable for borrowers. To qualify for a loan with Lending Club, you must:
Be a US citizen or hold a permanent residence status
Be 18 years and above, and have a bank account.
Have a social security number
Have a FICO score of not less than 660
Have a credit history of not less than 3 years. Your history must have evidence that you have not been recently declared bankrupt, have no outstanding tax liens and no current delinquencies. You must also demonstrate through your credit history that you borrow responsibly.
If you have a credit rating of above 740, Lending Club allows you up to 9 inquiry reports within the last 6 months. Borrowers with less than a score of 740 have a limit of 4 inquiry reports, within the last 6 months. All borrowers must have at least 3 accounts and 2 of them must be active at the time of loan application.
Here are a few calculations from the Lending club and Poster loan calculator on different loan amounts, to help you understand the interest rates and the monthly amount payable. A loan of 5,000 at 7 percent interest rate is equivalent to a monthly charge of $ 154.39. A 10,000 loan at the same interest rate will attract a monthly charge of $308.77. 20,000 at 7 percent adds up to a monthly payment of $ 617.54. 30,000 loan amount at the 7 percent interest rate attracts a monthly repayment of $926.31.
Comparative Analysis between Lending Club and Prosper
The greater concern now comes on deciding which of these two platforms is ideal for you. Considering the pros and cons of each of them, and how they compare will make the decision easy for you. Aside from lending rates, there are other considerations you need to factor in when making a decision, such as:
Minimum credit score
Prosper’s minimum rate is 640 while Lending Club’s is 660. In this regard, Prosper is more favorable.
Debt to Income
Prospers debt to income percentage is less than 50 percent while that of Lending club is than 40 percent. This debt to income percentage implies that Prosper is more lenient in advancing loans to borrowers who have more debt as compared to Lending Club. It is important to remember that debt to income refers to monthly payments on credit cards, mortgage, car payments, child support all this divided by your monthly income.
Number of inquiries
The maximum number of inquiries acceptable between these two sites fluctuates with time, however, the trend has been that Prosper is normally more lenient when it comes to number in inquiries. This number is determined by the attempts a borrower has made to get loans within the last 6 months prior to their loan application.
Number of open accounts
To qualify for a loan in each of these platforms, you need to demonstrate that you are a responsible borrower. Both of them have it as a requirement that the borrower must at least have 2 open accounts. These open accounts may include auto loans, credit card loans, mortgage loans and students loans. Unless you are young, it is easy to satisfy this requirement.
Looking at their advertisements, both have similar APR’s. The rate you are charged depends on several factors such as credit score, type of debt, total debt amount, income, payment history and other factors they might deem fit at the point of loan application.
Neither of the sites charges for checking your rate, however, you will be required to pay a small fee for your loan to be processed. This amount is normally deducted from the loan amount. The processing fee is less for people will better credit scores and overall less risky borrowers.
As evidenced, by the analysis from these two lending platforms, credit scores go a long way in determining first whether you qualify for a loan and the rates you will get. This emphasizes the need to pursue measures to build your credit score. Borrowers will less than ideal credit scores have to result to more aggressive options such as negotiating with BBB A+ rated institution, such as National Debt Relief.
National Debt Relief
National Debt Relief specialty lies in reducing the balances of various debts such as repossessions, credit card debts, unsecured loans, medical bills and certain business debts. They also strive to ensure that borrowers are not harassed by creditors in their places of business and homes. It is noteworthy that National Debt Relief does not charge an upfront fee. Again, NDR will only receive a fee once the debt has been settled. This means that they will only charge a fee if they negotiate with creditors successfully. This is great for relief especially for people with poor credit scores and those struggling with debt. That said, their fees range between 18 to 25 percent of the total debt, depending on the debt amount. These fees also vary from one state to another. With their debt consolidation program, borrowers can be declared debt free in a period of 48 months or less.
At this point, you are wondering what they qualification standards are. NDR works with clients carrying a minimum of $7,500 in qualifying debt. On this note, it is important to bear in mind that Credit card bills and unsecured debts qualify under their debt settlement program. Most of the secured debts including mortgages, auto loans, and secured debts do not qualify.
However, all is not lost for people with significant secured debts, NDR, has extensive networks and they can refer you to an organization that can assist. NDR does not normally settle student loans, nonetheless, people with huge student loans can get expert advice from the debt settlement department. NDR is open to people who are falling behind on monthly payments and also those who cannot afford to meet the minimum payments. They will explore ways in which to help you, they have a track record and vast experience dealing with clients in dire financial situations such as long-term medical issues, divorce, the death of loved ones, and unemployment. Their aim is to help you without resulting to drastic measures such as declaring bankruptcy.
Is Bankruptcy an Option?
Bankruptcy should only be considered as the very last resort when all else has failed. According to NOLO.com, a bankruptcy petition alone will cost you between$310 to $335. If you add other costs like lawyer fees, waivers, fees and the repayment plan in a Chapter 13 bankruptcy, you can spend thousands of dollars.
Filing under chapter 13 can result in a dramatic reduction of unsecured debt, however, this option also comes with a truck-load of undesirable consequences. For starters, it will mean parting ways with all your hard earned assets. Again, declaring bankruptcy is a public affair, once the process starts, you cannot sweep it under the carpet. Your credit score will also take a major hit after you are declared bankruptcy. Rebuilding it could take decades. Again, bankruptcy will be like a shadow hovering over you, and it may come to bite in ways that you did not expect. Applying for a mortgage, or rental property could prove very hard, if not impossible. Remember that bankruptcy will reflect on your history for about 7 to 10 years. This will be a major red flag to any lender out there. There are instances when you may find it hard to get a job due to your unfortunate brush with bankruptcy. Today, not many people are willing to marry someone with a bankruptcy record. This is another reason why you strive by all means to explore debt consolidation measures, do not shy away from speaking to these lenders, you never know how far they can stretch, again, they will give you advice to help you stay afloat.