Bills.com > Manage Debt > Get a Loan > Loan Articles > Debt Relief Loan Options

Debt Relief Loan Options

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.

Comments (16)


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.
Erika T.
Battle Creek, MI  |  January 22, 2011
Bill-my debt is not credit card debt. It is due to job loss and unemployment wages being 500 less than my total bills themselves (rent, car, car insurance, medical bills, etc.) what are my options? There are no jobs here in Michigan! This is creating a snowball effect of BAD!
Bills.com
January 24, 2011
There are not a lot of good options, if you are running a short fall each and every month. This is especially the case when the option to take on a second job or additional hours does not exist, due to the economy. One thing to do is to call each of your creditors and see if any offer a hardship program. See if you can get some of them to agree to a smaller than standard payment temporarily. If you can't get any flexibility from your creditors, you may need to seek a free consultation from a bankruptcy attorney. It may or may not make sense to file for bankruptcy, depending on the size of your debts and the other options that are available, but you should know if the option exists to discharge your debts.
Josephine R.
Philadelphia, PA  |  December 22, 2010
I don't know which loan to choose that will help me in my situation. I have two homes, one I am currently living in, the other I want to move too, I have a reverse mortgage on the home I am living in, the home I want to move to and has been purchased free and clear of any loans or mortgages, but needs improvements. my credit is not to good, but my ability to pay back is great. Can you help me to obtain a loan so that I can get into my new home, and sale my old home, to pay off the reverse on it. then I want to put the reverse on my new home to pay off the loan I may get from your bank, please help me with deciding on what loan to apply for and get. Thank you.
Bills.com
December 22, 2010
Josephine, we are not a bank or a lender. Bills.com is a consumer finance information portal. We educate people about financial issues and have tools to match people with lenders and other types of firms that help people solve financial problems.

In your case, it is not clear how much money you are looking to borrow. Because your credit is not too good, you're options are restricted. Have you seen your credit report lately? What is your credit score? I think that you need to work on improving your credit score, so you can get a loan later, if you don't qualify for a loan now. Does the home with the reverse mortgage have any equity? How much is the new home worth? If equity in either home is not a source of a solution, other solutions to consider include looking for an unsecured loan from a local bank or credit union (which are not easy to get), borrowing from a retirement account, or using credit cards to pay for the improvements.

Avatar
Renaishia M.
January 10, 2011
Hi, I'm looking for a loan so I can have 1 monthly payment, as opposed to what I am paying now.
Bills.com
January 10, 2011
It may be a good solution to take out a debt consolidation loan. You will be judged for approval of a loan based on your debt-to-income ratio, your credit rating and history, and your assets. If you don't qualify for a debt consolidation loan that will improve your financial position, please read about the different options for resolving debt that are available.
Thanks for your feedback!

Get a Loan Quote Now!

 
Articles Ask Bill
Thank you for subscribing!