10 Questions to Answer Before Contacting a Debt Relief Firm

To continue from where we left on Monday when debt becomes too much to handle there’s one relief we can think of, debt consolidation to reduce the interest rate. That may affect your credit but getting rid of debt burden at a cheaper cost makes it favorable. Previously I posted about self-consolidating debt to avoid high fees of debt consolidating companies.

Debt consolidation has few aspects that you should know. It has a very bad impression on your credit, it requires hefty fees and you’re faced with the increased tax burden. Please note, I’ll never recommend my friends and family to go for debt consolidation. I’d rather advice them to go to a credit counselor instead.

A credit counselor can work for free, often creditors arrange for one. Credit counseling with transparency helps in getting the right advice according to individual’s situation. Make self-introspection first priority and credit counseling second. Let debt consolidation be your third preference.

This post is about the first option, knowing your situation and trying to rectify it yourself.

10 questions to ask before going for debt consolidation

Debt management and debt relief are two topics of interest that invite a lot of questions. It is natural for you to feel worried when you’re burdened with debt. You must sort out a few important things prior to contacting a credit counselor.

1) Can I find myself out of debt?

Click on the link above, I had written various ways to get rid of debt. Start with budgeting. Save money, try to do some side gigs. Try to get a second job. See if your partner can also start working if they’re not.

There’s nothing a human being can’t do in this world which others can do. I know people who got rid of debt to the tune of $100,000 in a few years.

Have a self-belief. Chalk out a plan and then work towards it tirelessly. No debt is big enough for you. Read on when this fails in your mind.

2) Can I really pay my debts off?

Opting for another loan to pay off your debts is not a good idea at all. You might find yourself in a worse situation as your debt burden might increase. You may choose one out of the most realistic approaches to debt management, consolidation, and settlement to acquire a transparent asset appraisal.

There are crowd funding sources that lend money for debt consolidation. They typically charge less interest than credit card companies. Prosper or Lending Club are two such resources where you can get personal loans to pay of high-interest credit card loans.

3) Is there anyone who can assist me with debt?

Credit counselors may negotiate with your creditor and arrange for a debt management or settlement option besides suggesting financial planning and budgeting for you. Information concerning identification and finances are confidential in nature and demand a careful handling from a licensed state agency.

Do not hide anything from your counselor, only then he will be able to give you the right advice. You may want to get a second opinion when in doubt.

4) Is DMP a good option?

A debt management plan is a debt relief method that enables you to pay-off your debt by making consistent payments every month through a long-term plan. A suitable payment plan is chosen by a debt relief service provider on the basis of their negotiation with creditors.

5) Can I opt for Debt Consolidation?

A debt relief method like debt consolidation arrives at a sum of all your debts that you ought to repay at a reduced rate of interest over a specific period of time. Your creditor acquires their money through this debt management company, once you pay the latter.

The question you should ask yourself is, can you afford to have a mark in your credit history? Any bad report in your credit history will stay for at least 7 years. Having a bad credit seriously hampers your ability to apply for a mortgage or a car loan.

Also, can you afford the fees and can you pay a lump sum amount to your creditors. Bear in mind the year-end tax burden too. The money you won’t pay to your creditors because of a settlement will be treated as an income and taxed accordingly.

6) Is debt settlement a good option for me?

A debt relief method like debt settlement urges you to repay at a lower amount by lowering your entire debt through negotiation. This method is effective when you can’t meet your monthly payments. Settling your debt turns easier as you pay a lump sum upfront.

7) Are debt collectors governed by law?

Debt collectors are neither allowed to call the debtor at work nor can they discuss issues with a third-party. They aren’t allowed to call you before 8 am in the morning and beyond 9 pm at night. They may send only emails, snail mails, and faxes.

8) Is it good to file bankruptcy?

Bankruptcy is the lender of last resort. Besides leaving a negative impact on your credit score, it will cause hindrances towards availing credit, state license, employment, and insurance coverage in the future.  A debt relief firm shows you through better options.

I’d say don’t even think of filing bankruptcy unless there’s a dire need.

9) Do I risk losing home or car?

Personal debt doesn’t cause you to lose your car or home. These are secured assets and don’t count towards credit card debt relief. The lender only has the right to repossess unsecured assets in the event you fail to live up to personal loan or credit card payments.

When the debt in question is your mortgage, yes you do lose your home, same with the car loan.

10) Does debt prevent availing credit in future?

You may come across a few companies that are willing to lend money to debt-stricken individuals. However, it is not wise to increase your debt when you’re under a financial crisis. Prior to applying for more credit, it is wise to repay all of your current debt. You may seek the guidance of a debt relief service provider in this regard.

Now that you have considered the above things, it’s time to sit with a credit counselor