10 Best Debt Consolidation of 2018

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Debt consolidation is a debt refinance method used to consolidate unsecured debt like student loans and credit cards into a single monthly installment. There are different ways to consolidate debt, the most typical one being an unsecured debt consolidation loan usually offered through major banks or debt consolidation companies. Other loan options are home equity lines of credit, credit card balance transfers, and direct or private student consolidation loans. As with any other debt instrument, there may be substantial pros and cons to taking out a debt consolidation loan. Before seeking debt consolidation, inform yourself about this and other alternatives such as debt management programs or debt reduction strategies. Debt settlement programs differ from debt consolidation as they negotiate directly with creditors on your behalf to reduce the overall amount owed. Deciding on the right debt reduction option depends on one’s financial goals and credit situation.

Debt consolidation could be a good option for those struggling with several types of debt like student loans, mortgages, car loans, overdue credit card payments, or medical bills, and who are looking for a way to pay off what they owe while avoiding bankruptcy. While consolidating multiple high-interest loans into a single, low-interest one could be beneficial for those able to obtain a better rate, lower monthly payments or both, this type of personal finance process could end up being costlier in the long run. When choosing a debt consolidation loan, make sure you are not substantially exceeding the duration of your previous loans, which could make you end up paying more towards interests than you would have done otherwise. If you have an inordinate amount of debt or have been in debt for a long period of time, then you may want to look at credit counseling programs or alternatives that could help you correct the behaviors that led you into debt in the first place.

Before opting for a debt consolidation loan, make a detailed list of how much you owe, how long it will take you to pay off those debts, and how much you will have paid towards overall interests. After determining these amounts, shop around for debt consolidation loans and compare how much you would pay in interest towards your current loans versus what you would pay for a consolidated loan. If a debt consolidation loan is right for you, pay off your other accounts as soon as you are able to and modify unhealthy spending behavior by, for example, limiting or ceasing credit card spending for the duration of your loan. Once you have opted for debt consolidation, you will have to make timely payments towards your loan in order to avoid further damage to your credit. Although it may not be an easy process, keeping a positive outlook and taking responsibility for your actions can be the most empowering way to regain your financial freedom.

Another important factor to consider when comparing debt consolidation options is whether the loan will be unsecured or secured by a form of collateral—which can be easier to obtain if your credit is affected. Opting for a secured loan, however, will put your assets in jeopardy and may result in a precarious fiscal situation if you are not able to keep up with your scheduled payments. Also, consider the interest rate you will qualify for as well as possible costs and fees such as early repayment penalties. Remember that if the principal is paid off quicker than it would have been without the loan, then debt consolidation can help boost your credit score in the long term. However, this may also extend the loan’s term significantly, in which case the potential savings are offset by paying more interest over time. Most importantly, there’s no shortage of questionable debt resolution services around these days. Make sure the company you choose is certified by the AFCC, IAPDA accredited, and FTC compliant, and always beware of providers that seem too good to be true.

HOW WE COMPARE DEBT CONSOLIDATION

Reputation

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According to statistical data collected by the Federal Reserve Bank of New York, as of October of 2017 U.S. household debt increased to 13 trillion in revolving and non-revolving credit, a 16% increase since 2013. Considering that credit cards and loans are now more accessible than ever and that the great majority of Americans earn barely enough to maintain their standard of living, it’s not surprising that debt in the United States has skyrocketed to an all-time high since the Great Recession. As the number of people with student loans, credit card, and subprime auto loan debt increases, so does the number of families living under the weight of financial hardship. If you are among the millions of people currently struggling to keep up with monthly payments, one of the options available to you is debt consolidation.

If you have already weighed the pros and cons of debt consolidation and have informed yourself about the credit implications of defaulting on this type of loan, the next step on your list should be to look for a lender or debt consolidation company that upholds consumer financial laws and meets certain minimum qualifications. For that reason, our editorial team has compared debt consolidation companies based on several factors, including compliance with federal regulations, employee certifications, and average consumer ratings and reviews.

BBB Rating

The Better Business Bureau (BBB) is a nonprofit organization promoting ethical business behavior and monitoring compliance by their 400,000 Accredited Businesses. Consumers wanting to make better-informed decisions and identify trustworthy businesses can find over 4 million unbiased customer reviews and complaints on BBB.org

AFCC Membership

The American Fair Credit Council (AFCC) is a leading association of professional consumer credit advocates promoting and enforcing best industry practices among member companies. Through a strict code of conduct that upholds transparency and compliance with the Federal Trade Commission Regulation of 2010—that which prohibits debt relief services from charging up-front fees before settling consumer debt—, the association seeks to change the negative public perception of debt settlement companies.

IAPDA Accredited

The International Association of Professional Debt Arbitrators (IAPDA) is the leading certification program ensuring debt consultants, credit counselors, and consumer debt relief specialists receive proper training and meet a minimum standard of excellence. The company’s training and certification programs are recognized in all states and are in compliance with the Uniform-Debt Management Services Act (UDMSA).

FTC Compliant

The Federal Trade Commission (FTC) works to protect consumers by preventing deceptive and unfair business practices and promoting public access to accurate information. Through an amendment made to their Telemarketing Sales Rule prohibiting debt relief companies from charging fees before settling their customers’ debt, the FTC seeks to deter debt relief providers from targeting consumers in financial distress.


Qualification

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Most companies offering debt consolidation loans set requirements with regard to the amount of debt the client must have accrued before requesting a loan, the types of debt they are willing to work with, and, in most cases, the borrower’s ability to meet their financial obligations. While some debt relief companies set minimum amounts for debt consolidation—typically between $5,000 to $10,000—some merely require the debt to be unsecured. Unsecured debt refers to money you borrowed with no collateral, such as student loans, credit cards, and medical bills. Secure debt, on the other hand, requires collateral in the form of personal assets like your home or automobile.

Regardless of the type of lender you choose, whether a major bank or credit union, there will likely be certain minimum income and credit requirements such as a good debt-to-income ratio, sufficient monthly income, and other assets. Those with less-than-perfect credit scores may still qualify for a debt consolidation loan by offering the lender security through savings, assets or equity. If you have a poor credit score and your debt outweighs your income, you may need to resort to other alternatives like enrolling in a credit counseling program through a private service provider or nonprofit organization, or employing the services of a debt settlement/debt resolution provider.


Pricing & Fees

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The Federal Trade Commission (FTC) has taken steps to protect consumers against companies that charge fees prior to settling or reducing a client’s unsecured debt. The 2010 FTC Telemarketing Sales Rule (TSR) amendment states credit counseling and debt settlement companies selling their services over the phone cannot collect fees or charges unless they successfully settle or resolve at least one of the consumer’s debts. They must also disclose the basic aspects of their services including how long it will take for the program to yield results, how much the consumer will have to pay for the service, how dedicated accounts work, and the potentially negative implications of using debt management services. It is illegal for a debt settlement company to misrepresent their services or make false claims about what those services are intended to accomplish.

FDIC Insured Deposits

Again, it is illegal for debt settlement and credit counseling companies to charge upfront fees as they can only be collected upon the settlement of the debt. However, some debt companies will ask their clients to place monthly fees—which typically amount to a percentage of the client’s total enrolled debt—into a dedicated account they can access once they have rendered their services. These funds are intended for negotiating with creditors and making a lump sum payment once a settlement is reached. FTC guidelines include a provision that states dedicated accounts can only be created if the account is maintained at an insured financial institution, the consumer owns the funds and interest and is able to withdraw them at any time without penalties, and the provider does not own or have any affiliation with or exchange referral fees with the company administering the account.


Services

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There are many kinds of debt relief services one can take into consideration before bankruptcy. The majority of the companies we feature will fall into three major categories: debt consolidation, debt settlement, and credit counseling. Each program will have different lengths, estimated debt reductions, and additional services offered.

Debt Consolidation

Debt consolidation involves taking different debts and consolidating them into a single loan or monthly payment. This option makes sense for people who want to simplify the process of making payments to several different lenders and those able to secure a lower interest rate or monthly payments through a debt consolidation loan. Consolidating debt does not diminish what is owed, so debt can return with a vengeance if the underlying problems that drove the individual to incur debt are not addressed.

Debt Settlement

Unlike debt consolidation, debt settlement allows consumers to lower the amount of their debt by negotiating with lenders and creditors. If you have fallen significantly behind on payments, lenders may be willing to reduce your debt and settle for a lower amount out of fear of losing their entire investment. Some potential downsides, however, are having to pay service and penalty fees as well as being required to pay taxes on the amount that was forgiven. Most notably, though, is debt settlement will always negatively impact your credit score.

Credit Counseling

Credit counseling services provided by professional credit counselors or debt specialists offer guidance and support for consumers needing help managing their debt. Credit counselors can also assist in the development of a budget and offer advice with regard to income and expenses, credit repair, debt consolidation, and bankruptcy.


How does debt consolidation work?

When you consolidate debt, you reduce the number of your monthly obligations to more than one creditor. Most of the time, this is done by taking out a debt consolidation loan, which you use to pay off other debts. This way, you only have to make one payment every month to your new lender instead of keeping track of several different debts. A debt consolidation loan can be secured, like a home equity loan, or unsecured, like a personal loan. With a debt consolidation loan, you may be able to get a lower interest rate than the rates owed on the debts you want to eliminate. Therefore, you may end up paying less for a debt consolidation loan than you would have if you tried to pay off all your debts separately.

Debt consolidation can also refer to a type of debt relief program. Under a debt consolidation service, you make a single monthly payment to the program, which then pays your creditors. The provider charges fees for the service, which will be added to your monthly payment. Keep in mind that certain kinds of debt are not eligible for management under these programs, such as secured loans, like mortgage and auto loans, or back taxes.

What is debt settlement?

Debt settlement is another form of debt relief. Under this program, the service provider will negotiate with your creditors to accept a lower lump sum payment to settle your debt. The program will require you to deposit a certain amount each month into an account, which will eventually be used to pay off your debt. There are many risks associated with debt settlement. First, since most debt settlement programs will tell you to stop paying the bills you are trying to settle, your credit could take a serious hit. Also, committing to depositing a specific amount of money, which could be large, for a long period of time may be too difficult in your financial situation. Finally, some creditors aren’t even willing to negotiate with debt settlement programs and may even sue you for repayment of the debt.

What is debt management?

Debt management is a form of debt relief that does not require you to borrow money. Instead, you work with a credit counseling agency which will give you advice on how to manage your money to pay off your debts. These programs focus on changing the habits that made you fall into a debt trap in the first place. There are also debt management plans (DMPs), which are somewhat similar to debt settlement programs in that you are required to make deposits into an account with the credit counseling agency. The agency then helps you prepare a payment schedule and uses the money to repay your creditors. They may even negotiate with your creditors to change the terms of your debt so your interest rate and fees are lower. Before enrolling in a DMP, however, make sure your creditors are willing to work with your credit counseling agency to fulfill the plan.

Can you consolidate debt with bad credit?

It is possible to consolidate debt with bad credit. However, the number of options available to you is limited compared to someone with good credit. Qualifying for an unsecured debt consolidation loan may be difficult, for one, since creditworthiness is one of the first things lenders look at. You may be able to qualify if you apply with a co-signer with a higher credit score than yours. If you default, this person would be responsible for paying back the loan. You may also be able to qualify for a secured loan by putting up a property or a vehicle as collateral; however, if you fall behind on the loan payments, you could have your home foreclosed on or your car repossessed. If you can’t take out a debt consolidation loan, you may still be able to participate in debt management or debt settlement. Both programs have risks, but one of them may work for you.

What is the difference between secured and unsecured loans?

When you take out a secured loan, the lender’s investment—i.e., the money you borrowed—is protected by a piece of collateral. Most often, this is a house with a mortgage loan or a car with an auto loan. If you stop repaying the loan, or even if you’re late, the lender has the right to take possession of the collateral to recover their money. In contrast, an unsecured loan does not need a piece of collateral. Lenders use your creditworthiness—how likely you are to repay the loan, as determined by your credit history—to decide whether or not they will lend money to you and how much. Secured loans are easier to get, since they imply less risk for lenders than unsecured loans. Interest rates on secured loans are also usually lower than the rates on unsecured loans. Although an unsecured loan may have higher interest rates, the lender does not automatically have the right to take your property if you fail to repay the money according to the loan terms.

Do debt relief programs affect your credit score?

The way your credit score is affected depends on the type of debt relief you undertake. For starters, every time you open a new account, be it a credit card or a loan, your score goes down a few points. Don’t worry: this decrease is temporary and your score should go back up after a few months, so long as you stay current with your monthly payments. Therefore, a debt consolidation loan should not affect your score negatively in the long term.

Debt management plans (DMPs) are another matter. Enrolling in a DMP will show up on your credit history, and some creditors may take it into account when deciding whether or not they should lend you money. However, it is not factored into your score, so you should not see a drop in the number, so long as you continue to make full payments on time every month.

Debt settlement, on the other hand, does have a negative effect on your credit history and score, because it implies paying less than what you really owe on your account. The higher your FICO score is, the farther it drops if you miss a payment or settle an account. This means someone with a score of 780 can lose between 125 and 145 points when settling a debt, while a person with a score of 680 only loses between 65 and 85 points. If you settle on more than one account, this negative impact is multiplied. However, if your debt is especially overwhelming and you are trying to avoid bankruptcy—which can truly decimate your credit score—the pros of debt settlement could outweigh the cons.

What do I do if I cannot consolidate my debt?

If you need to reduce your monthly payments on outstanding debts but can’t consolidate those loans, there are several options to consider. If you have a mortgage, you can look into refinancing it using the cash-out option. In this scenario, you borrow against your home for more than the balance of your existing mortgage and use the excess funds to pay off your high-interest debts. You can also consider transferring your credit card balance to another credit card that has a lower interest rate or contacting a credit counseling agency to analyze your finances and provide debt management advice. If your total debt has reached a point where no repayment plan is effective, then bankruptcy, although extreme, is your final option.

This article was provided to us by Consumers Advocate.

Top Seven Ways to Save on Halloween

Easy Ways to Carve Halloween Costs like a Pumpkin

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To some of us, Halloween is an enjoyable time to dress up our children and/or ourselves, carve scary pumpkins, decorate our home with spooky effects, gorge on treats, and spend the next morning jogging off a candy binge. To others, it is a time to figure out how much candy they need to have on hand to avoid cleaning toilet paper out of their trees the next morning.

Regardless of what you do the morning after Halloween, with these simple steps you can wake up with a thicker wallet than usual, and not just from hiding Hershey’s Kisses in it.

  1. Buy Bulk Candy – You can save tremendous money by buying individually wrapped bulk candy instead of the overpriced brand name assortments at your grocery store or pharmacy. Do make sure that you buy individually wrapped candies; parents will (and should) shy away from letting their children try loose candies because of tampering concerns.
  2. Make Your Own Costumes – It takes a little more thought, but you can come up with creative ideas for your children’s costumes without having to go to the party store and purchase a pre-packaged costume. Get your kids involved in the creative process, and prepare to be amazed at their ideas.

As for you, what if you don’t like to dress up at all? Get some spare tax forms and go as a tax collector. How frightening is that?

The point is that you can come up with something clever without an elaborate costume. As a result, you will be more comfortable at the Halloween party, appropriately warm, and not burdened by the realization that your elaborate costume makes it impossible to use the bathroom.

  1. Make/Recycle Decorations – You can save significant money by making your own Halloween decorations out of inexpensive craft materials and leftover project materials you may have around the house. Old boxes, construction paper, leftover fabric or worn-out clothes… with a little glue, paint, and markers, they can be made into tombstones, spiders, ghosts, and other timeless classics.
  2. Use Thrift/Dollar Stores – Why pay more than you have to? Thrift shops are full of costumes and decorations for the creative-minded soul at rock-bottom prices. Dollar stores also stock seasonal bargains and are a great source for simple decorations or the materials you need to make them. Go early, or the selection will be picked over.
  3. Pool Your Resources – Find a group of friends with whom you can share decorations and costume pieces. It’s a great way to get more life out of materials without doing the same thing every year.
  4. Bring-Your-Own Parties – If you are hosting a party, try making it a bring-your-own buffet. Your guests may surprise you with tasty holiday treats, and if not… well, what could be more frightening than a mystery casserole? Turn it into your advantage with a creative ingredient list: Eye of Newt, and a dash of powdered toenails…
  5. Take Advantage of Post-Halloween Discounts – It won’t help you this year, but stores will be clearing out their costume and decorations shelves the day after Halloween to expand the Thanksgiving and Christmas displays. You can pick up great bargains to store for 10/31/2019.

You can also pick up Halloween candy at a discount, but don’t kid yourself into thinking that will last more than a week. Show up as soon as the store opens and be prepared for hand-to-hand combat in the candy aisle. The day after Halloween is Black Friday for candy addicts.

Get an extra level of Halloween enjoyment this year by having a great time and saving money in the process. You will enjoy the glow of a fatter bank account, and you probably will not feel nearly as guilty when you raid your children’s Halloween candy after they go to sleep.

This article was provided by our partners at MoneyTips.com.

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Millennials Should Improve Credit Before Home Shopping

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Small Changes, Big Impact

Sometimes a seemingly small difference can have a large effect, like the straw that broke the proverbial camel’s back. According to a recent study by the credit bureau Experian, that same principle applies to millennials and their borrowing behaviors. With a small change in financial habits, more millennials could significantly shift their risk perception with lenders – allowing them to qualify for mortgage loans or receive better rates if they do qualify.

Older Borrowers, Better Scores

Your credit score, a reflection of your borrowing and repayment history as reported to the credit bureaus, is a valuable risk assessment tool for lenders. It’s not the only measure, but you’ll need other positive factors – such as a large pool of savings or an increase in income – to overcome a poor credit score.

According to the study, average credit scores improve with age. Baby Boomers (age 51-71) average 727 under the VantageScore system with Generation Xers (age 36-50) well behind at 679 (close to the 677 average for all age groups).

Millennials show a further age gap within the generation. Older millennials (age 29-35) have an average credit score of 665, while younger millennials (ages 22-28) average 652. Overall, the majority of millennials fall outside the prime credit range of 661 and above – on the borderline for receiving an affordable mortgage loan offer.

Several Paths, Same Destination

Many younger millennials are just embarking on their careers while dealing with student loans and other new expenses. Combine this with a general aversion to credit – which gives lenders little if any credit history to assess – and it’s understandable why younger millennials would have lower credit scores than their slightly older counterparts.

Younger millennials also have higher delinquency rates on personal loans (2.08% compared to 1.51% for older millennials), compounding their risk in the eyes of lenders.

Older millennials without a mortgage aren’t faring much better. Experian found that for millennials without a mortgage, the average age was 28 with an average income of $33,000 and an average credit score of 623. Only 39% have a credit score in the prime range above 661.

Both sets of millennials have credit score gaps preventing affordable mortgages, but the challenges differ within the generation. Some have to overcome poorer credit histories, while others need to build credit histories from scratch.

Raise Your Score, Get a Mortgage

If you need a bit of a credit score boost to climb into the prime range and secure an affordable mortgage loan, what steps do you take?

Have you looked at your credit report lately? There may be reporting errors that are dragging your score down – or worse, evidence of identity thieves creating fake accounts or placing fraudulent charges on your existing accounts. You must correct these issues immediately, regardless of your credit score or home-shopping status.

Assuming your credit report is accurate, you can take simple steps that can make a big difference to your credit score. The most important step is to make all payments on time, every time. On-time payments are the largest component of your credit score, as they give lenders good reason to believe you’ll always repay your debts. Set up alerts, reminders, sticky notes, reverse tattoos on your forehead – whatever it takes to get payments in on time.

Of course, you’ll have to have the money to pay your bills – so you must keep spending and overall debt under control as well. If you can’t pay an entire bill, pay as much as you can afford to keep interest charges down and reduce your credit balance. Lowering your credit utilization, the amount of credit you use compared to your total credit limits, can raise your credit score significantly.

Keep old accounts open and open new accounts sparingly. Older, stable accounts show a history of responsible behavior, while opening multiple new accounts makes lenders think you’re about to spend more than you can afford to pay off.

Is your credit history too thin for lenders to assess your risk? Consider a starter credit card that you can use for small purchases each month (well below the credit limit) and pay off the bill each month. That’s a quick way to establish a good credit history because you hit the major risk factors (on-time payments and low credit utilization). If you want more credit, check out our list of credit card offers for a limited credit history.

Embark on a credit score improvement program before you shop for a mortgage, and you’ll be pleasantly surprised by your mortgage loan options.

The Takeaway

Experian’s study shows that a small improvement in your credit score can go a long way to improving your ability to afford a home (and your financial situation in general). Using the above tips, a proper budget, and fiscal discipline, young millennials can achieve homeownership at a reasonable cost.

While the study focuses on millennials, the same logic applies regardless of your age or financial status. Small changes can make a big difference anywhere.

When it does come time to apply for a mortgage loan, make sure you realistically assess what you can afford. Some lenders will let you borrow more money than you should accept. Don’t ruin your fresh new credit with a long-term debt that you can’t afford to pay.

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