- Look into using your home equity to consolidate debt.
- Work to improve your credit score, if it is a barrier to your being approved for a consolidation loan.
- Consider a debt management program, if you don't qualify for a loan.
I can't get a consolidation loan because of too much revolving debt-to-income ratio. Can anyone help?
I can't get a consolidation loan because of too much revolving debt-to-income ratio. I'm not behind or late on any payments, but I'm not getting ahead either. We almost have to use our credit cards to live. Our credit history even shows we pay our bills religiously. We refinanced our house 4 years ago and not much equity built up. My wife works 1 job and I have 2. We have 3 kids, mortgage and 2 car payments, as well as loans and credit cards. Can anyone help?
There are several solutions to your problem, but which option is the best for you will depend on how old the debts are, if you own property, and how much money you can afford to allocate to your debts on a monthly basis. If you follow the links below, I can put you in contact with a company that may be able to assist you in resolving these debts.
If you want a free debt consultation with one of Bill's approved debt help partners, see the Bills.com debt help savings center.
Debt Consolidation Loan
If you own a home, a secured debt consolidation loan may be right for you. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount.
Also, be careful before you borrow money against your home to pay off credit cards and other unsecured loans; you will be converting what was previously unsecured debt into secured debt. This could cause you problems down the road if for some reason you are unable to make your payments, or if life circumstances force you to file bankruptcy, as you may not be able to discharge the secured debt as you would unsecured debt. However, secured debt consolidation loans work for many people, so this is an option to consider carefully. The Bills.com Savings Center is a great resource to help you find a lender for this type of loan.
Bills.com makes it easy to compare mortgage offers and different loan types. Visit the Bills.com free mortgage refinance quote page for details.
Another option is to seek an unsecured loan from your bank or a local credit union. It generally requires excellent credit to qualify for an unsecured loan. If you are turned down, find out why. If it is related to your credit score, take a look at your credit report. You can take steps to improve your credit score and qualify later.
Some loans are secured against your assets, such as your car. The interest rate for this kind of loan is usually slightly higher than a home loan, but it is certainly less than you pay on most credit cards. Look for a loan with no prepayment penalty, so you can pay it off faster as your financial situation improves.
Credit Counseling
Another option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though.
First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as home or an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
Debt Settlement
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though they will significantly damage your credit while in the program and for at least a year or two afterward. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
Because of your financial difficulties, you may want to stop focusing on the importance of your credit score. Although you may have a good credit score, because of your low income and large debt amount, most lenders will likely see you as a high risk borrower, and may not be willing to extend you credit, so your actual credit rating may not good as you believe. A debt settlement program is probably the fastest way to resolve you debts, and once you repay your debts, you should be able to rebuild your credit score through careful management of your credit accounts.
Hopefully, one of the several options I have described above may be able to help you. I encourage you to explore the Bills.com Debt Help page to read more about these and other options available to you.
I hope this information helps you Find. Learn & Save.
Best,
Bill
VIDEO: Debt Consolidation - What is Debt Consolidation?
Dealing with debt
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Each state has its rate of delinquency and share of debts in collections. For example, in North Carolina credit card delinquency rate was 4%, and the median credit card debt was $410.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.
10 Comments
If you have a car that has any equity in it, look into getting an 'auto title loan.' An auto title loan uses your vehicle as collateral. Because the lender could take possession of your car, if you default on the loan, the credit requirements to be approved for an auto title loan are far less strict than for an unsecured loan.
Another possible solution is to see if someone who knows and loves you is willing to co-sign on a loan for you or to lend you the money on his or her own. I generally advise people NOT to become a co-signer, because the co-signer can be held fully responsible for the debt, if you were to default on it. Still, given the grave consequences that you described should your situation deteriorate into bankruptcy, I wanted to mention co-signing to you.
Lastly, have you spoken with the JAG office? I don't know if they can help you, but I have heard that they are quite helpful, in general.
Second, regarding your debts, if they are causing you distress, then you need to resolve them either with something like debt settlement or, as you mentioned, bankruptcy. Before you commit yourself to either, study the potential downsides of each and whether either will have an impact on your career. As mentioned above, that is where consulting with a military law expert comes in.
It does not appear this is credit score related. The settlements should not be an issue. The greatest credit-harm you suffered on those accounts was when you went severely delinquent, prior to settling them. At this point, they are not likely the cause of the problem. They will fall off your credit report 7 years from the date when you first went delinquent (not the date of settlement).
Speak with another lender and don't pay for another appraisal without learning if you meet the second lender's requirements.