Debt Consolidation for Renters or Homeowners with Bad Credit or No Equity
If you find yourself in a situation where you no longer have any way of paying off your bills on time, this can quickly become very stressful. You could risk losing your home, car, or other valuable assets to foreclosure or bankruptcy. If you have bad credit or no equity, it can be especially difficult to find a way out. For this reason, it is important for people in this situation to admit that they are having financial trouble, and to look for a way to resolve the issue before the problem escalates out of control.
Debt Consolidation Programs
If you are unable to resolve your financial problems on your own, there are several programs available that can assist you with the problems that you are facing. Two of the most popular options are credit counseling and debt settlement.
Credit Counseling
A credit counselor will help you analyze your current financial situation in order to understand exactly what steps should be taken in order to move forward. They will look at your income and your expenses, including payments to your creditors, and make a realistic estimate of how much you can afford to pay each month.
They will then write up a payment plan allowing you to pay off your debt over time, adjusting the payments that you will need to make so that you are able to make them on time. In many cases, they will be able to negotiate a lower interest rate out of your creditors.
This is also referred to as a debt management plan. Your creditors will be required to agree to the debt management plan in order to move forward. In many cases, they will prefer the plan to bankruptcy, in which they will lose money on court fees. If the debt is secured with assets, this is not always possible, however.
Debt Settlement
If credit counseling doesn't work, you might need to consider debt settlement instead. Debt settlement has a more negative impact on your credit score, although it is still far preferable to bankruptcy.
In debt settlement, you and your creditors reach an agreement where the total amount of debt that you owe is reduced. There are many programs that are available to assist you with this. In most cases, this type of program is based on the time-value of money. Sometimes a creditor would rather have a relatively small amount of money paid up front than a larger amount of money payed over a long period of time.
Through debt settlement, you adviser will allow you to set up a trust account which you will pay periodic payments to each month. The payments will go to the account rather than your creditors. Your adviser will handle all communications with your creditors so that they will not harass you.
You will continue to put these funds into the trust account until it contains about half the amount owed to your creditors. At this time, your adviser will attempt to negotiate a lump sum payment from the trust account, in exchange for forgiving your debt. This does not always work, but it is preferable to bankruptcy for both you and your creditors in many cases.
Personal Loans
Finally, the only other option other than bankruptcy is a personal loan. You can use a personal loan to pay off your other creditors, so that all of the debt is now owed to a single creditor. This is a form of debt consolidation. In many cases, you will be able to find a personal loan with an interest rate lower than that of your creditors, or at least with lower monthly payments.
