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Debt Relief Loan Options

By Mark Cappel Nov 18, 2012
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Credit applciation to get a loan
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.

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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Comments (27)


Kalifa L.
Staten Island, NY  |  November 18, 2012
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!
Bills.com
November 19, 2012
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.
Brandi L.
July 09, 2012
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?
Bills.com
July 10, 2012
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.
Elizabeth R.
Redding, CA  |  June 18, 2012
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.
Bills.com
June 19, 2012
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.

Allan M.
El Cajon, CA  |  April 28, 2012
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
Bills.com
April 30, 2012
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.
Valerie M.
Wilmington, NC  |  April 05, 2012
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?
Bills.com
April 06, 2012
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.
Avatar
Valerie M.
Wilmington, NC  |  April 06, 2012
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.
Julie N.
Coolville, OH  |  October 13, 2011
PLEASE HELP, NEED ADVICE! I had to shut my business (child care center) of 14 years down last year due to struggling financially to keep the place open. I had 7 employees (all required by the state to meet the child-staff ratio) and got very behind on my 941 taxes. The interest and penalties are killing me. I am in an installment agreement with them, but it seems like I am not getting anywhere close to getting this paid off. I still owe around $9,000.00. Many, many "tax relief" companies have contacted me to try to help but they say I cannot use the "offer & compromise" program because my assets are worth are worth $130,000. The only assets I have are my home and mine and my husbands vehicle. No boats, motorcycles, motor homes, etc. No "pleasure" items, just the necessities. Even though my installment agreement is only $150.00 a month, I still have all the OTHER debts relating to the business. I had not paid myself for the past two years just to be sure there was enough for my employees. I also got cash advances on two different credit cards just to make payroll. Here I am now, struggling to pay all these business debts along with my household expenses. I cannot get a loan because my credit it so bad from getting behind on the business loans, credit cards, etc. My total debt amount from the business is about $ 32,000.00. Do you have any advice or suggestions for me?
Bills.com
October 16, 2011
Julie, I will offer a few suggestions, but there is no silver bullet for the problems you listed.

When a tax relief firm tells a prospective client that an Offer in Compromise (OIC) will not succeed, it is to the tax relief firm's credit. It is much better that you hear that your assets prevent a successful OIC than for you to scrape together the money to hire someone who assures you that you can reduce your IRS taxes only to find out after you pay the fee that no OIC is forthcoming.

I think that you should consult with a bankruptcy attorney. Payroll tax debt can't be wiped out, even in a Chapter 7 bankruptcy, but you don't have to make payments while in a bankruptcy. If you qualify for a Chapter 7, you may be able to clear out other debts and be able to afford paying the IRS once the BK is over. Your home equity may be a barrier to a Chapter 7, depending on the state in which you reside. If a Chapter 7 is off the table, then speak with the attorney about the kind of payment you could set up in Chapter 13. A Chapter 13 payment will factor in your income and necessary expenses, when working out a payment plan with your creditors.
Linda B.
St Louis, MO  |  September 22, 2011
I hope there is someone out there who is willing to take a chance on me.My total debt is under $4,500. and I would have a extra 1,400 that would be free and clear after my routine expenses such as rent,utilites and a few other bills.I receive a nice pension and small check from SS and its more than enough for me to have a comfortable living.But ever since I became disabledand had to wait over six months for my benefits to kick in my credit took a real nose dive and this cuaused me to apply for those payday loans and I can't get a foot hole to stop the cycle,I hope there is someone out there who can help me so that I could have one payment instead of eight. I know my situayion may seem a risk to you but I willing do anything you require me to do if someone will take a chance to help me,I'm 63 years old with limited mobility with copd,so I' not a party girl that spends money recklessly so if anyone and offer some suggestions of agencys thay might want to help me .Please let me know.Thank you lb48
Bills.com
September 22, 2011
See the Bills.com resource Short Term Loans for ideas on places to find hardship loans.
Virginia G.
El Paso, TX  |  September 20, 2011
Can I consolidate my car and payday loans together?
Bills.com
September 20, 2011
In theory, different loans can be combined into one. In practice, because you need to have strong credit and income in order to qualify for a debt consolidation loan, they are hard to come by.
Cris M.
Chicago Ridge, IL  |  July 11, 2011
I have credit card and private loan debt adding up to $35, 000 from college years. I make about $2500 a month currently (can't get anymore hours). I have a credit score in the mid 700's. The terms on these loans changed surprisingly. I would like to be debt free within 2 years. I only have a car thats worth about $4500 as collateral. I can't seem to lower this with the amount of interest. Is it possible to get a loan to consolidate with a lower interest? My husband has a credit union account? Should i go to them or a local bank? Thanks Bill.com
Bills.com
July 12, 2011
You did not specify whether your student loans are federal or private. Student loan debt consolidation is easier when the loans are federal. If they are federal, contact the US. Department of Education. If they are private student loans, then consolidating them is like applying for any unsecured loan. To qualify, you will be judged based on your credit score, your debt-to-income ratio, and your credit history. While it can't hurt to speak with your credit union, it is very hard to get a $35,000 unsecured loan these days.

I applaud your goal to be debt-free in two years. Maybe you need to work on your non-student loan debt separately? I suggest that you look at the Debt Coach tool, to figure out the best way to work on your consumer debt.
Blake O.
Smyrna, GA  |  February 22, 2011
Hi Bills.com - Great service you got here. My question is kind of odd, but maybe not so. While we have had troubles in the past, and my working as a 1099 consultant hasn't helped, however, I've just recently taken a new position that's taking some time in building income. In other words, waiting on the commissions from new job is creating debt for me. I know i simply need a short term loan, but with bad credit score (repo, over 3 yrs)I'm at a loss who to turn to. Any advice/ideas where I can turn to??
Bills.com
February 22, 2011
Prospective lenders will qualify you for a debt relief loan the same way they do for most any loan: based on your debt-to-income ratio (your income compared to certain debts you service monthly), your credit rating and history, and any collateral or security you have. If your credit is bad and you lack an asset to borrow against, such as a home or vehicle with equity, then I think you will have trouble getting a loan. You may be able to take a cash advance on a credit card, but the fees are high and if you don't pay the advance back as agreed, your interest rate can be hiked to the sky. Do you have any retirement accounts that you can borrow against? If you do, that may be a good solution, as long as you repay the loan as agreed, in order to avoid any tax liabilities. Other than that, you may benefit from speaking directly with your creditors, explaining your situation, and asking if they can temporarily lower your required monthly payments until your commissions start kicking in. Lastly, if you are working as a 1099 contractor, make sure to set aside money to cover your income tax obligation, so you are not left with a sizable debt when your taxes are due.
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