What is Debt Consolidation?
Debt Consolidation without a loan is an innovative solution by InCharge Debt Solutions. We take the work out of debt management through debt consolidating: combining your payments into a single, predictable monthly payment. You chose the day of the month that works best for you, based on your personal budget and payroll schedule. This is just one of the benefits available to those who qualify for our debt management program. Other benefits may include lower interest rates from your creditors, waived fees, stopping the collection calls and paying off your debt faster than on your own.
Here are five reasons you should consider InCharge debt consolidation:
- Convenience: Paying multiple debt payments is hard work. Mail gets lost, life gets busy and the late fees pile up. With InCharge’s debt management plan, we make it easy. We consolidate debt into one payment.
- Scheduling: Ever feel like you are juggling too many payments with too many due dates? With InCharge’s debt management plan, you can schedule the exact day of the month that your single debit pays all of your debts. This means no more confusion over what needs to be paid when: your debts are all paid with one payment.
- Lower Interest Rates: If you qualify for our debt management program, we may be able to secure lower interest rates from your creditors.
- Pay Off Your Debt Faster: How would you like to be debt free within a few years? Each year, thousands of InCharge clients graduate to debt free status.
- Stay Debt Free Education: We can help you become debt free, but how do you stay that way? As an InCharge client, we’ll help teach, motivate and inspire you to stay debt free. Our financial literacy program will teach you how to save money, build an emergency fund and set achievable financial goals.
How the Debt Consolidation Alternative Can Help You
According to data from the Federal Reserve, approximately 37% of Americans carry a credit card debt balance from month to month. Some people carry small balances. Others carry large balances. You may be somewhere in the middle. Carrying a balance over months, years, decades… adds up. The average credit card interest rate is around 15% APR. That’s $15.00 per year for every $100 you carry in debt. If you have $15,000 in debt, you’d be paying $2250 each year to hold that debt. And that’s only for one year. If you carry that same debt for 5 years, you’ve paid $11,250 to borrow $15,000.
It’s not easy to get out of debt. That’s where debt consolidation comes in. Here’s a scenario to help you better understand traditional debt consolidation. After you’ve read that, we’ll tell you how InCharge’s non profit debt consolidation alternative can capture all the benefits of traditional debt consolidation without the risks.
Consolidating Debt and Loans with a High Debt-to-Income Ratio
Anne, 32, was a high school teacher in debt. Anne starting using credit in college to pay for books and expenses. She graduated with a small balance on two cards: $2400. As a new teacher, Anne signed up for 2 more credit cards at her favorite clothing stores to pay for a professional wardrobe, accumulating $2500 more in debt. Over the next few years, Anne experienced a number of financial set-backs. She opened another credit card to help pay for a major car repair ($1500) and another to cover expenses when her roommate moved out with no notice ($2500).
Two years ago, Anne was laid off. As a teacher, she thought she had job security, but her state had a budget crisis and teachers with little seniority were the first to go. She was unemployed for one year and then re-hired the following year. With few options, Anne lived off her credit cards while unemployed, adding an additional $9000 to her debt. At 32, she owes $17,900 on 9 different credit cards. In some 2-week spans, Anne has to make 5 credit card payments. “It feels like a big payment is always due. I try not to look at the finance charges. It’s just too depressing. I can barely keep up.”
Anne is interested in consolidating debts. “Just having one payment to worry about each month would be a godsend.” When she looked into a traditional debt consolidation program, Anne faced a number of problems. Because be she had a very high debt-to-income ratio, she did not qualify for the the best interest rates. There were also high fees associated with taking out a large loan. Then Anne discovered InCharge’s debt consolidation alternative.
With InCharge’s debt consolidation alternative, Anne was able to consolidate all of her payments into one convenient monthly payment, without taking out a new loan. InCharge was also able to help Anne get lower interest rates on 7 of her 9 cards, meaning more of her payment each month would go to pay off the balance, than to interest. With the InCharge debt consolidation alternative, Anne will be debt free in 4 years and 2 months. “Having lived with credit card debt my entire adult life, I cannot tell you what it means to me to be debt free in a few years. Every time I make my one consolidated payment, I know I’m one month closer to my financial freedom.”
Debt consolidation lenders won’t qualify you for a loan if too much of your monthly income is dedicated to debt payments. If you find your debt-to-income ratio in excess of 50 percent, you should consider alternatives to debt consolidation, including consolidating without a loan. If you need help calculating your ratio, check out our article on how to calculate your debt-to-income ratio.
How to Get a Consolidation Loan
A debt consolidation loan can take a lot of the stress out of your financial life by reducing multiple monthly payments to just one payment to a single source.
However, he whole purpose of doing this is to reduce the interest rate you pay on debts as well as the amount you pay every month so it is important that have accurate financial records.
Here is a step-by-step sequence for getting a debt consolidation loan:
- Make a list of the debts you want to consolidate.
- Next to each debt, list the total amount owed, the monthly payment due and the interest rate paid.
- Add the total amount owed on all debts and put that in one column. Now you know how much you need to borrow with a debt consolidation loan.
- Add the monthly payments you currently make for each debt and put that number in another column. That gives you a comparison number for your debt consolidation loan.
- The next step is to approach a bank, credit union or online lending source and ask for a debt consolidation loan (sometimes referred to as a personal loan) that covers the total amount owed. Ask how much the monthly payment will be and what interest rate charges are.
- Finally, do a comparison between what you currently pay each month and what you would pay with a debt consolidation loan.
Your new monthly payment and interest rate should be lower than the total you were paying. If not, try negotiating with your lender to lower both rates. If you’ve been a good customer at that bank or credit union, they may take that into consideration and reduce your rates.
If you still can’t get a lower monthly payment and interest rate than you were paying, call a nonprofit credit counseling agency and investigate another debt-relief option like a debt management program or debt settlement.