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Debt Relief Loan Options

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Bills.com Team
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Highlights

  • Consider a consolidation loan to pay-off your debt sooner or to make your monthly payment smaller.
  • Review the differences between secured and unsecured loans.
  • Avoid running up new debt, after you consolidate your old debt.
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Learn your debt relief loan options.

You might be interested in a debt relief loan if payments to many different lenders and high interest rates are straining your finances. Consolidating your debt can reduce your monthly payments by lowering your interest rates and/or extending your term. Usually, in order to do so you must take out a loan. By allowing you to pay off your original debt, this loan will consolidate all your separate payments into one monthly payment. Note that you are not actually eliminating your debt, but instead giving yourself relief from the pressure associated with the debt you have.

You have a few different debt relief loans to choose from when you consolidate your debt. All loans break down into two types: secured and unsecured.

Secured Debt Relief Loans

An asset or collateral of some sort protects the lender when you obtain a "secured loan." You must own items, such as property or a car, which the loan can be secured against, even if they are not fully paid off, to obtain a secured loan. The lender can place a lien against these items. A lien will keep you from selling the property or will allow the lender to force your property into sale in order to collect on the loan if you fail to make payments according to the agreed upon terms. When you take out a secured loan, the lending company holds your title to your property until you settle your debt in full, including all interest and applicable fees. Because your debt is secured against actual assets, lenders are more likely to grant you larger amounts of money than an unsecured loan.

Types of secured loans include home equity loans, home equity lines of credit, mortgage refinance loans and second mortgages. These loans are based on the total value of your home minus the amount you still owe. You can use these loans to consolidate your debt and pay your original debt off. Once you pay the original debt off, you will have a more convenient single monthly payment and hopefully a lower interest rate, as secured loans typically have lower interest rates than unsecured loans. The downside to this sort of loan is that if you have budgeted incorrectly and are unable to make payments for your consolidated loan, you may lose the property against which the loan is secured.

Unsecured Debt Relief Loan

An unsecured debt relief loan is harder to obtain because the lender has nothing to collect if you are unable to pay them back. Lenders will look at your credit and employment history in order to determine your risk level: or what is the statistical likelihood that you will repay the loan. Regular payments on your current debt and a stable employment history show that you are not a high risk. There are lenders who will give unsecured loans to you if you have bad credit or unstable employment history, but their interest rates are usually very high. Any unsecured loan will have a higher interest rate than a secured loan and usually will be for a limited amount.

It is easier to obtain unsecured personal loans through consolidation companies if your debt is good debt as opposed to bad debt. Good debt is incurred from an investment (mortgage) or improving yourself (student loan). Bad debt is incurred from credit cards, retail charge cards, and financing luxury items like electronics or boats.

If you believe you will be able to make one larger payment on time and in full, then consolidation may be an easier option for you. However, remember that even at a lower interest rate, which may be difficult to get if your loan is unsecured, paying your debt off over a longer term will result in a higher grand total on your loan just by virtue of the increased amount of time over which your loan will have interest applied to it.

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27 Comments

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  • KL
    Nov, 2012
    Kalifa
    I am so happy I came across this site, and have so many questions I am overwhelmed. I noticed a medical bill on my credit report that I didn't know existed. At the time I had full coverage in medical insurance but somehow the medical center neglected to send the proper information of my medical surgery to my health insurance at the time. This was 3 years ago while I was living in another state. Where do I begin to get it off my credit report. I do not owe this bill. My insurance should have fully covered it but someone in the doctors office neglected to do their work now it's on my credit report. HELP PLEASE!
    0 Votes

    • BA
      Nov, 2012
      Bill
      Please see the Bills.com article How to Negotiate Your Medical Bills for a discussion of the issues you raise in your comment. I encourage you to ask any follow-up questions you may have on that page.
      0 Votes

  • BL
    Jul, 2012
    Brandi
    I have a loan on my car and also some other unsecured debt. Is there any company that will let you consolidate a secured loan with unsecured debt?
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    • BA
      Jul, 2012
      Bill
      A bank or credit union could, in theory, offer you a loan large enough to consolidate your auto loan and your other debts. However, it is hard to find this kind of loan at a reasonable interest rate.

      Is your goal to simply have one payment? Are you struggling with high interest rates on your debts? Are you having trouble making your payments? Your answers to these questions will dictate what your best solution will be.

      I suggest that you use the Bills.com Debt Coach, to find the best debt solution for your individual situation.
      0 Votes

  • ER
    Jun, 2012
    Elizabeth
    Most people on this web-site are people with credit problems. How are we to get a consolidation loan with credit in the low 500s. A year ago my credit was in the 750 range, but due to circumstances beyond my immediate control I got behind on my credit cards. To make it short. I lost my business, my husband lost his job, my tenants in our commercial building stop paying rent. We ended up giving it up. Deed in lieu of foreclosure. Have gone through all most our savings trying to maintain. Husband finally found a job after looking for two years. Had to relocate, spent the rest of our savings moving. Owe 65k on our mortgage, which our son makes. Zillow values it at about 159k. Been on the job 4 months now. Bringing home $3500./mo. Our bills consist of 800mo/rent and utilities. Would like to pay off credit cards, actually we just settled one of them, with what we were able to save since starting work. Now were broke again. With the high interest and the fees they added to our cards for not paying we can't afford to pay them monthly, and still be able to put money away for a rainy day. (medical expenses, car expenses, etc). My question, is it possible to get a loan? I've been told no about six times now from various lenders. I thank you for your time and all the valuable information on your web-site. Your doing a great job.
    0 Votes

    • BA
      Jun, 2012
      Bill
      Elizabeth, given the harm to your credit from the late credit card payments, it is unlikely that you will find a loan that will improve your position. Your positive cash flow (based on the $3,500 take-home vs. your $800 for rent and utilities) leaves you with a couple of options.
      1. A credit counseling program could help you lower your interest rates from the penalty rates you've been saddled with. It is possible that some of your late fees could be reduced, too.
      2. Continue negotiating settlements on your accounts. You could speak with a professional debt settlement firm, too.

      It is smart to work to build up a rainy-day fund, but doing so may be less of a priority than paying off high-interest debt.

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  • AM
    Apr, 2012
    Allan
    My wife lost her Job. I'm holding it down but am sinking fast. Just found out we are expecting another child and seriously need financial assistance like "NOW" $15,000 would consolidate my current debt and get me on track to managing and maintaining my finances until my wife finds another job. Can Somebody help us please??? itsonlyeye@yahoo.com (Been on my Job 6 years. I make $19hr. Making payments would Not be a problem.) No games, scams or illegal activity please. I need help from someone willing to do ligit business
    0 Votes

    • BA
      Apr, 2012
      Bill
      To qualify for an unsecured loan, your credit score and debt-to-income ratio will be examined. Most unsecured loans from banks or credit unions have moderate to high-interest rates, so, even if you qualify, it won't help unless your other debts are at higher rates.

      If you can't get a loan that helps you, look into a credit counseling program, if your interest rates are a main problem.
      0 Votes

  • VM
    Apr, 2012
    Valerie
    We are in debt relief with Freedom now due to a hardship. My Husband owns his own business and took a loss last year due to open heart surgery a year and a half ago. We used the credit cards to get us through but now we just can't pay even our monthly payments. Interest is too high and we can't get ahead. Too much stress and so we stopped paying and got with Freedom last month. We live in North Carolina. One credit card is in my husband's name and three are in my name. The house is in my husband's name only and he owns it free and clear.
    1. Can the credit card company take my husband's house from him?
    2. Do credit card companies play nice when you are in debt relief and are trying to pay them off?
    0 Votes

    • BA
      Apr, 2012
      Bill
      As with the answers to many questions in life, there are the short answers and the long answers. I will start with the short answers to your questions first:
      1. It is highly unlikely a credit card issuer or its collection agent would attempt to take a delinquent debtor's house to satisfy an unpaid credit card bill.
      2. Creditors must follow the rules found in the Fair Debt Collection Practices Act (FDCPA), or risk fines levied by the FTC and civil judgments from consumers they harm.
      Here are the longer answers to your questions:
      1. Let us say Person X lends money to Person Y. Both sign a loan contract. Let us say Y does not repay the loan as agreed. X tries calling Y, sends Y letters, and Y still does not repay the loan. X sues Y in their state court for breach of contract, there is a trial, and X wins. The state court awards X a judgment, which X can use to do three things:
        • Get a wage garnishment order that forces Y's employer to pay X a portion of Y's wages. This is common.
        • X can track down Y's bank or credit union and use the judgment to force Y's bank to give X some or all of the money in Y's accounts.
        • X can track down Y's real estate and place a lien on Y's property. The lien is a claim on the property. If and when Y tries to sell the property the lien would be an encumbrance on on the property that a buyer would probably Y to pay off before touching the property.
        In some states, it is possible for a lienholder to foreclose on a property. I was unable to learn if North Carolina allows lienholders to do so. However, this is a very unlikely occurrence in states were it is allowed because of the high expense and the negative publicity it would create for the credit card issuer.
      2. You asked if credit card companies play nice with people enrolled in debt settlement plans. Expect to receive phone calls from the three credit card issuers. Initial calls will be friendly, and expect some of the issuers to follow a very chummy script when they learn you enrolled their account in a debt settlement program. They will, in a friendly manner, attempt to convince you debt settlement is not a wise choice, and you should cancel your contract with the debt settlement company. They will explain the horrible damage to your credit score, and the possibility of a lawsuit, and losing everything if you do not reverse course. Their friendly sounding script will exaggerate the possibility of a lawsuit. Remember, the person reading the script is paid to bring you back into the fold away from debt settlement, and back into paying your monthly minimums and exorbitant late fees. The person reading the script is not trying to help you fix your finances and get ahead.
      Each credit card issuer treats people in debt settlement plans slightly differently. Some are very hard-nosed negotiators and do not shy away from threatening lawsuits. Others have a longer view and accept what they can now, hoping that in the future the softer, friendlier approach will cause that customer to bank with them again in the future.
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    • VM
      Apr, 2012
      Valerie
      Thank you so much for your reply. I understand that Freedom Debt Relief is one of the best and they have been great with communication so far and I expect it will continue. I will continue to keep Freedom updated on any new contact from my credit card companies and continue to pay my monthly fees to get out of debt. My husbands credit score was 800 and mine was 780 but due to the lack of funds last year due to his surgery we could not get anyone to even help us with a secured home loan. It's a shame to work so hard to maintain good credit and then in a short course ruin it, expecially when it was out of our hands. Thank you again. Your site is very informative and down to earth.
      0 Votes