Debt Consolidation Loan

A debt consolidation loan is the substitution of multiple loans with a single loan. This single loan will often have a longer repayment period and lower monthly payments.

Consumer Credit Counseling Service (CCCS)

The Consumer Credit Counseling Service is an organization that offers budgeting and debt counseling. The service is designed to ensure that consumer debts are paid back over time.

Benefits of Credit Counseling

Credit counseling companies offer several benefits, including: 1) helping an individual develop a realistic and manageable budget, 2) handling contact and negotiating reduced payments with the individual’s creditors, and 3) the individual will only have to make one monthly payment to the credit counseling company instead of several to his/her various creditors.

Credit Repair Service

Companies offering credit repair services are regulated by The Credit Repair Organizations Act. Before you sign a credit repair contract, credit repair companies must give you: 1) a copy of the “Consumer Credit File Rights Under State and Federal Law”, and 2) a written contract outlining your rights and obligations. These laws are specifically designed to protect the consumer from potentially fraudulent credit repair services.

Debt Management

Debt management is a strategy of managing and reducing the amount of debt owed to creditors and other lenders.

Debt Management Program (DMP)

A DMP is a formal program administered by a specialized debt management company. A debt management company will contact and negotiate with a person’s creditors in order to arrange for lower payments. The individual will only have to make one monthly payment to the debt management company, which will handle disbursements to the individual creditors. In addition, as part of the debt management program, the individual will have to agree not to apply for or use any additional credit.

Credit Bureaus

There are three major national credit bureaus: Experian, Equifax, and Trans Union. These credit bureaus gather and sell information on how people manage their credit. This credit information is issued in the form of credit reports that detail each individual’s debt history, payment history, loan history, credit lines, etc.

Credit Insurance

An insurance policy that pays off an individual’s credit card debt should the borrower become disabled, lose his/her job, or die.

Recommended Credit Limit

The Consumer Federation of America recommends that individual’s have credit lines no greater than 20% of their gross income. This is considered a manageable amount of debt and is looked upon favorable by the credit agencies.

Lower Monthly Bills

Lower monthly bills can be achieved through a variety of means, including debt consolidation, debt settlement, and credit counseling. Each of these services has positives and negatives. Debt settlement is usually reserved for people who cannot afford debt consolidation services. Debt settlement will get you debt free, but will adversely affect your credit. However, debt settlement is still preferred over bankruptcy. Debt consolidation has many benefits, including a consolidated monthly payment, lower monthly payments, lower fees, lower interest rates, and less creditor calls. Credit counseling helps an individual devise a savings and debt management plan that will eventually get him or her out of debt.

Credit Rating

The three national credit bureaus determine an individual’s credit rating based on the following factors: debt payment history, credit lines, current income, projected income, etc. Credit ratings are scrutinized by lenders when they make decisions on loan approvals and terms.

Credit Score

A credit score is a number between 300 and 800 that is determined by the credit bureaus when analyzing the credit information detailed in an individual’s credit report. Generally, a score of 720 or higher will get a person the most favorable rates with lenders. A person with a credit score of around 520 will get interest rates approximately 3 to 4% higher than someone with a credit score of 720.

Debt-to-Income Ratio

The debt-to-income ratio is the percentage of pre-tax earnings that are used to pay off obligations such as credit card balances, car loans, school loans, etc.

Fair Credit Reporting Act

The Fair Credit Reporting Act is a federal law that governs what the national credit bureaus can report and for how long. The law also standardizes procedures for removing and fixing credit report errors.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act outlines how and when a debt collection agency may contact you. Debt collection agencies may not call before 8 a.m. or after 9 p.m., or while you are at work if they know your employer does not approve. In addition, debt collectors may not harass you, or use unfair practices when trying to collect a debt.

Consolidation Loan – Minimum Credit Score

The minimum credit score required depends on the debt consolidation company. However, most companies generally require a credit score in the mid 500’s.

LowerMyBills

LowerMyBills (www.lowermybills.com) is a free online service that allows people to compare rates on monthly bills. The company is located at 2401 Colorado Avenue, Suite 200, Santa Monica, CA 90404. The company has relationships with over 500 service providers in areas such as auto insurance, health insurance, home loans, and credit cards. LowerMyBills offers debt consolidation loans as well as free credit reports. LowerMyBills.com debt consolidation loan can be requested online. A debt consolidation loan has the following benefits: one consolidated monthly payment, lower monthly payments, reduced creditor calls, waived late fees, reduced interest rates, and the ability to become debt free in approximately 12 to 48 months. The company also provides a free newsletter that includes savings tips and special offers. LowerMyBills.com was acquired by credit-reporting agency Experian in 2005. In the latest fiscal year, LowerMyBills reported $10.3 million in revenue and 125 employees.

Revolving Line of Credit

A revolving line of credit allows a borrower to continually borrow up to a specific amount as long as the amount is getting repaid.

National Foundation for Consumer Credit

The National Foundation of Consumer Credit is an organization that provides educational information on setting up budgets and managing credit.

Help Clearing Up Debt

The most efficient way to clear up your debt is to seek the services of a debt consolidation company or credit counseling company. These companies have trained professionals who will advise you and structure a program to effectively eliminate your debt.

Bad Credit Rating

A bad credit rating will be assigned by the credit bureaus to individuals who have continually had problems paying their debts. With a bad credit rating, credit institutions will consider the individual a high risk and will therefore either not extend credit or quote a higher interest rate.

Choosing a Debt Consolidation Company

Before choosing a debt consolidation company, make sure that you first do some research on each of the companies that you are considering. Debt consolidation is a broad term and can be used in relation to a variety of services. Lastly, always read in detail the terms of each debt consolidation program and ask questions if you don’t understand something.

Updating of Credit Score

After utilizing a debt management program to pay off any outstanding debts, a person can expect his/her credit report to reflect this usually within 6 months. Note that there are three national credit bureaus and they all have different credit scoring update schedules.

Debt Settlement

Debt settlement is negotiating with creditors in order to get a reduction in the outstanding balance. Although, it is possible to do one’s own debt settlement, hiring a specialized debt settlement company is the better way to go. Debt settlement companies can combine a multitude of outstanding balances in order to give them more leverage when negotiating with creditors.

Collection Agency and Debt Management Program

A collection agency can still file a lawsuit against a debtor even if they are involved in a debt management program. However, most creditors will not file a lawsuit due to the additional expenses involved and the uncertainty of the outcome.

Debt Consolidation and Credit Score

Use of a debt management program/credit counseling service is not reported on an individual’s credit report. Therefore, there should be no impact on the individual’s credit score. If a creditor does report that the individual is using a debt management program, this notation will be removed once that creditor has been paid in full.

Christian Debt Consolidation Programs

There are some specialized debt management companies catering specifically to those of the Christian faith. The actual debt consolidation service offered is the exact same as the regular non-denominational ones.

Partial Debt Settlement and Credit Score

Debt that is past due and is in collections remains on the person’s credit report for a period of seven years. Having a partial debt settlement is better than not having paid anything at all. With a partial payment, the person can have the credit bureaus reflect on his/her credit report a “settled, but satisfied” notation.

Filing for Bankruptcy or Debt Consolidation?

Debt consolidation is the better way to go as it does not impact a person’s credit score nearly as much. Partial payments are viewed much more favorably than no payments at all.

Chapter 7 Bankruptcy (Straight Bankruptcy)

With chapter 7 bankruptcy, the intent is to liquidate assets in order to pay off debts. The person filing for bankruptcy can claim exemption for certain properties that are necessary for daily living. For example, a car, clothing, personal effects, etc. An individual can only file for bankruptcy once every six years.

Chapter 13 Bankruptcy (Wage-Earner Plans)

With a chapter 13 bankruptcy, the individual filing does not have his/her assets liquidated. Instead, interest and late fees are waived and settlements are reached whereby debts can be paid off over an extended period of time. Note that certain debts cannot be discharged through bankruptcy. These non-dischargeable debts include income taxes, alimony, child support, student loans, and debts incurred under false pretenses.

Creditors and Income Tax Refunds

Creditors can only go after a debtor’s state and federal income tax refunds if the refunds are specifically subject to seizure by the agency holding the judgment.

Debt Free in How Long?

The time frame to be debt free using debt consolidation depends on several factors. These factors are: 1) the amount of debt you owe, 2) the monthly payment you can afford, and 3) the debt management company’s ability to negotiate reductions with your credits.

Free Debt Consolidation Quote

The majority of debt consolidation companies will offer you a free debt consolidation quote after you fill out and submit a small form. This form usually asks for the following information: the type of debt you have, the amount you owe, and the number of creditors.

Cost of Debt Consolidation Loan

The cost of the debt consolidation loan is covered in the interest rate you end up paying on the single consolidated loan. As long as this interest rate is lower than your current interest rates, you will save money overall.

Cost of Debt Counseling Services

Debt counseling services usually charge their customers a nominal monthly enrollment fee. These fees vary depending on the counseling service used and the amount of debt involved.

Can I Consolidate my Credit Card Debt?

Yes, credit card debt is unsecured and can be consolidated. Note that credit card debt is the most common type of debt that is consolidated.

Help with Debt Consolidation Payment

If you are having difficulty making your monthly debt consolidation payment, you first need to contact your debt management company and explain your situation. Often times, the debt management company will help you out by extending the loan, thereby reducing your monthly payment. If not, then you either have to look for another debt management company or file for bankruptcy.

Debt Relief

Debt relief is a broad term encompassing many methods of debt reduction, including debt settlement, debt consolidation, credit counseling, bankruptcy, etc.

What is unsecured debt?

Unsecured debt is a loan that is not backed by some type of underlying asset or collateral. Therefore, there is more risk involved for a lender, who then charges the borrower a higher interest rate. Examples of unsecured debt include credit cards, legal bills, personal loans, cellular telephone bills, etc.

What is secured debt?

Secured debt is a loan that is backed by collateral or an underlying asset. Examples of secured debts include your mortgage, your car, etc. If you default on your loan, the lender can seize your asset, sell it, and use the proceeds to pay off your outstanding balance.

How is a credit card’s average daily balance calculated?

The average daily balance is calculated by adding each day’s ending balance and then dividing that total by the number of days in the billing cycle.

How does making additional principal payments help?

By making additional payments, the loan will be paid down faster by reducing the amount of interest paid.

What constitutes a billing cycle?

Credit card companies consider a billing cycle to be the number of days between the end of the last statement and the current statement.

What is a charge-off?

This term refers to a creditor eliminating an outstanding debt. This debt is considered uncollectible and the creditor will usually demand that the balance be paid in full or agree to a settlement within 30 days.

How is a finance charge calculated?

A finance charge is calculated using the following formula: average daily balance x daily periodic rate x number of days in billing cycle.

What is a grace period?

A grace period is the interest-free time a lender gives a borrower between the credit card transaction date and the statement billing date. Note that a grace period does not apply if the individual is carrying an existing balance on his/her credit card.

What is a teaser rate?

A teaser rate is the initial low introductory rate a lender offers a borrower to entice him/her to accept the credit terms. Once this initial period is over, the interest rate adjusts to a stated interest rate or an indexed rate.

What is the average minimum payment?

Generally, most credit card companies require a minimum payment of 2% of the outstanding balance. If the borrower does not meet this threshold, the account can go into default.

What is a creditor?

A creditor is a company, organization, or institution that provides credit services to individuals and/or companies.

What is an unsecured loan?

An unsecured loan is issued to a borrower based on his/her creditworthiness alone. There is no collateral involved.

What is a secured loan?

A secured loan is issued to a borrower and collateralized with a security interest in a property or asset of the borrower.

How can I reduce my monthly debt payments?

Reducing your monthly payments can be achieved by using a debt management company to consolidate your debts. Your debts will be consolidated into one loan, which will have a lower interest rate and lower monthly payments.

What is the debt-snowball method?

The debt-snowball method is a debt reduction methodology. The basic idea is to pay off debts based on the amount owed (smallest balance to largest), not the interest rate charged.

What is a debt in arrears?

A debt that is in arrears is unpaid and overdue.

What is consumer credit?

Consumer credit is credit granted to an individual, which allows him/her to take ownership of a good or service during a term of payment.

What is a balance transfer fee?

A balance transfer fee is the cost a person incurs when transferring outstanding debt from one account to another. This fee varies depending on the lender.

How does a credit card penalty charge work?

Generally, if two or more payments are late on an account, the creditor will charge the borrower a penalty. This penalty is typically in the form of an increased annual percentage rate.

What is the prime rate?

The prime rate is the rate lenders assign to their most creditworthy customers.

What is principal?

Principal refers to the amount of debt, not counting interest, remaining on a loan.

What is bad credit?

Bad credit is a rating assigned to an individual who is seen by the credit bureau’s as being high risk to lend to. Generally, these individuals have had numerous problems paying their debts.

What is an acceleration clause?

An acceleration clause allows a lender to demand early payment when certain events occur. For example, if you default on the loan.

What is amortization?

Amortization is the process of paying off debts gradually, as opposed to in a single lump sum.

What is credit counseling?

Credit counseling is professional advice given to individuals in regards to budgeting, financial planning, and overall debt management.

What is delinquency?

Delinquency is the failure to make timely monthly debt payments.

What is gross income?

Gross income is defined as total pre-tax earnings before any deductions.

What is re-age?

Re-aging is updating the status of an account to reflect its current status.

What is an over-limit fee?

An over-limit fee is imposed on individuals who expand their credit balances past the allowable limit.