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Exploring Ways to Manage Debts and Avoid Serious Risks

by Elsa Stringer

Consumers facing serious risks because of their debts examine better opportunities for paying off these debts. In financial planning, the advisors show consumers better ways to pay their debts through consolidation. However, the consumer must be credit-ready before applying.

Lenders have minimum credit scores for these loans, and it is wise to compare how much they would pay with existing creditors to how much they could save with one loan payment. Convenient opportunities for settling debts could be the answer for some consumers, and the debt consolidation options might eliminate excess costs for the consumer.

Debt Consolidation Loans

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Debt consolidation loans provide a beneficial way to pay off creditors quickly and eliminate negative listings on the individual’s credit history. Consumers calculate their total debt volume and review how much they need to borrow. Next, they apply with their preferred lender. The lender reviews the borrower’s qualifications and provides a quote for the loan.

The consumers must have a qualifying credit score to get a higher-than-average interest rate. Typically, lenders want the consumer to have a credit score of at least 680 to get a debt consolidation loan. However, the lender must also establish affordability according to the consumer’s monthly income. All monthly expenses are considered when the lender calculates the maximum loan amount. Consumers should review the qualifications for the loans before applying. Consumers that want to find out about debt consolidation loans can get information about Debthunch right now.

What to Do With Unsecured Debts

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Unsecured debts such as credit card accounts require higher interest rates for some consumers. Store credit cards have the highest interest rates, even if the consumer has great credit. Paying off the credit cards requires the consumer to stay ahead of the interest they incur each month. For some consumers, once the credit cards are maxed out, it becomes a major obstacle to pay them off. Adding the unsecured debts to a debt consolidation loan could provide the consumers with a better interest rate and lower their overall payments.

If borrowers default on the accounts, the creditors send those accounts to collection agencies. Since they are unsecured, the credit cannot seize collateral to pay off the accounts. If the accounts go into collections for too long, the credit card companies may sell the accounts to a debt collection agency. When this happens, the creditor receives a payment demand for the account, and the debt collection agency follows tactics to collect the balance. Some creditors may also file an insurance claim to avoid a financial loss. After these actions have occurred, the debt collection agency may provide the consumer with a settlement offer of around 50% less than the total balance for the account.

Settlement offers are helpful for consumers and make it easier to pay off the debt, but the consumer could lose credit points by accepting the settlement offer. According to statistics, they receive more credit points by paying off the original balance in full. This doesn’t include the inflated balance calculated by the collection agency. Too often, the collection agencies double the balance to recover more money from the consumer, and it becomes unaffordable for the consumer.

Repercussions of Default on Secured Loans

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Secured loans include collateral the creditor can seize if the consumer defaults on the debt. Typically, a mortgage is secured by real estate and auto loans are secured by the auto title. If the consumer misses about three payments, a mortgage lender could start the foreclosure process, and the auto lender sends a recovery agent to repossess the automobile. The laws prevent the consumer from keeping the goods they purchased with the loans if they do not make the payments.

The collection efforts to recover the balance of the loan start with the sale of the collateral. For example, the mortgage lender starts the foreclosure to seize the property, and they can place the property on an auction to sell it quickly. All proceeds accumulated from the auction apply to the mortgage balance, but any leftover balance is the responsibility of the borrower. When avoiding foreclosure, the borrower could plan ahead of these issues and get a debt consolidation loan before they default on the mortgage. It could lower their interest rate and help to pay off the original creditor.

What are the Major Advantages of Taking out a Consolidation Loan?

The major advantages of a debt consolidation loan start with lower payments and reduced interest rates. These are the sole purposes that most consumers seek the financing option. They condense their debts down to one monthly payment instead of several, and it is more affordable for them. It is a great alternative to filing for bankruptcy and facing credit challenges within the next decade. The consumer pays off the original creditors, and this could eliminate higher interest rates for unsecured debts such as credit card accounts.

What Can Consumers Do to Avoid Credit Problems Later?

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Avoiding credit problems requires the consumer to create a better plan to manage their debts. If they don’t submit timely payments, they could get into trouble with creditors and end up back in collections. This results in negative listings on their credit history and prevents them from making major purchases later. Keeping their debt volume lower helps the consumer from facing late charges and unnecessary costs. Some consumers may consider working with a financial advisor to create a better budget for paying their monthly expenses.

Consumers need an effective solution for paying off debts quickly. Debt consolidation is a great way to settle their debts and avoid higher interest rates. When reviewing their debts, the consumer should calculate how much they will pay at their current interest rates and compare the amount to the total they’d pay if they consolidated the debts.

If the interest rates go down, the consumer could save on their total debt amount. Consolidation loans also help them pay off individual creditors and prevent having to make several monthly payments. Taking out the loans requires just a few minutes, and consumers submit an application online.

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