Debts, when not managed properly, can exhaust your financial resources. And if left unattended, it can pull you down to bankruptcy. There are a number of ways you can correct the situation. One of them is getting the help of a well-experienced and credible debt consolidation company.
What It Does
A debt consolidation company helps individuals and companies straighten their finances by managing their debt repayments. They provide a semblance of relief from heavy interests that accumulate over the years.
When you get the services of a debt consolidation company, make a checklist of important things that they should do for you. The first thing they should do is provide you with a dedicated debt counsellor who will review all your debt records.
Now with your gross income figured out, find out what all of your debts are that are going out each month. Include everything it s listed on your credit bureau s. Example: Car note=$450.00 + House note= $560.00 + Credit card debt= $425.00 Boat note= $310.00 Charge-offs=$1200.00 (yes, charge-offs; these are bills that you never paid and they were written off). Add all of your debts up. With just your obvious debts (including the charge-offs), you have $1805.00 per month going out. I arrived at that figure by adding up all the monthly notes and taking 5% of the charge-offs. 5% of $1200.00 = $60.00. We re not through, though. Now we have to figure in cost of living-utilities. Each lender has their own algorithm for utilities but a good range to estimate would be to add $300.00. Now we have a total outgo of $2105.00. This is what you have to have to pay your current bills before you take on any other debt.
Almost all lenders will not allow your new car note to exceed 20% of your current income. For our example, let s assume that your gross income is $5300.00 per month. Let s take $5300.00 and subtract your debts, which are $2105.00. That leaves you with $3195.00. To make it easy, take $2105.00 and double it. That would be $4210.00. That would leave you with disposable income of $1090.00. What the lender is looking at here is referred to as debt-to-income. They want to know if you have more going out than you can handle. This is strictly a case of numbers and provable numbers. If your gross income was $4500.00 and you had $2105.00 in debts each month, you need to be prepared for one of two things; add your spouse s income and your spouse to the deal or trade in the other auto. If your debt-to-income is running too close to 50%, you re going to have a hard time getting a loan for anything. Make sense? The way the bank looks at it is this: you can t afford both cars so they assume that you are going to let the other (older) car go back to the lender-repossession. That s their take. Debt-to-income is a HUGE deal.
You do not need to consolidate all your debts. The counsellor must be able to help you distinguish between secured and unsecured debts. Unsecured debts like credit card bills are the ones that you need to deal with. You may leave secured debts like auto loans and house mortgages to run their course since you need to maintain a record of credit. This record or credit history determines your credit rate score, which loan facilities look at when you apply for a loan. Consolidation should not harm your credit standing.
A good counselor also knows that you still need to maintain credit cards for your travel and business needs. He or she should not advise you against keeping them. What the counselor should do is lay down a more practical and convenient repayment schedules for you. This can be arranged with your credit card company. The debt consolidator must have a strong network with these financial institutions to provide this kind of service.
Non-profit and for Profit Debt Consolidators
There is a debate over the efficiency of two kinds of debt consolidators: those that operate for profit and those that claim to be non-profit organizations. But whichever you choose, keep in mind that the best debt consolidator is the one who is most able to chart a good plan to eliminate burdensome debts.