Essential questions that you ought to be aware of when applying for a debt consolidation loan

In the event that you are looking to get a debt consolidation loan to find a way out of the financial pressures that have been weighing you down then the probability is that you may have lots of doubts, questions running about inside you regarding how you can make this debt consolidation plan work.

This article will attempt to show you how you can find the solutions to some such questions.

  1. What will be the taxes that you shall have to pay after the debt consolidation loan gets underway?

A lot of financial institutions shall have to be reporting the debts which have been reduced and were more than $500 over to the authorities at the IRS. A debtor shall be required to report this as an extra income on the returns to his taxes. However, the IRS might just let you offset the income from the reduced debts right up to the amount which had made you go insolvent when you had your debts consolidated. You shall be becoming an insolvent if you were to owe an amount of money which was more than what you have and that would mean that you will be getting a net worth which is negative.  In the event that you have a lot of debts to clear, then the chances are that you shall not do not have any positive net value and because this is a rare case, the chances are that clients shall be required to pay up taxes on the deducted debt amount.

  1. May your wages be getting garnished?

When you are listening to debt collectors, the chances are that you can get tricked into feeling that they will seize and take away your income if you are unable to pay them off at the stipulated time and place. This threat that you may go on to lose a certain part of your wages to these garnishment actions will be quite frightening as a prospect for people who have financial troubles already. However, this is a mere tactic of intimidation which collectors use in order to trick people into paying them on time even though they do not possess the necessary funds at that moment.  In the beginning, the creditors can threaten to bring a lawsuit to get a judgment in his favor then go on to get an authorization for the garnishment. It is important that you understand at a single instance only one creditor is authorized to garnish the wages. They cannot take money from your salary without getting approval from the courts, and besides this, you will also get intimidated by this through a formal letter.

  1. Debts settlement scheme and a credit counseling scheme are different

Debt consolidation is a way of debt settlement. One of the essential differences between a debt settlement scheme and a credit counseling scheme is that you shall be paying off the debt balances with the interests and your other fees in a credit counseling scheme. In debt settlement schemes like debt consolidation, you will be paying a single consolidated loan amount of your debts with a lower rate of interest. With debt settlement methods you can get freedom from financial problems in 2 or 3 years. Credit counseling will take around 5 to 8 years. Another major difference lays in the workings of the schemes, in debt settlement schemes a firm will be working for you only because you are their consumer. They will not receive any commission from the creditors. This will make your debt consolidation team have no conflict of interest and work for you completely. In a scheme involving credit counseling, the firm will get some commission from the creditors. This will lead to a conflict of interest.

  1. What sorts of debts can be covered by debt consolidation and settlement techniques?

Each and every type of debt which is unsecured can be negotiated successfully into a debt consolidation loan. The unsecured debts refer to those debts that have not been associated with a material object which may be repossessed by a creditor. Loans like an auto loan will not get included into debt settlement or consolidation because a creditor can easily repossess the vehicle. However, bills like medical bills, department store bills, debts on credit cards are some loan types that can get settled with debt consolidation loans. Student loans do not get included in debt settlement plans though. These include loans backed by governments which cannot get discharged in any proceeding for bankruptcy. Loans for higher education which are private in nature or do not have government backing can get included, however.

  1. When your creditor does not agree to your debt consolidation plan?

A lot of debt consolidation loan providing companies will have strong connections with major banks and collection agencies. Debt consolidation is today seen as a recognized and legal solution for collecting debts by most business institutions. There can be a few odd cases where creditors may not want to go for debt consolidation scheme when it is brought up; it will mean that you must wait for some time before he finally accepts. There will be a few creditors who will be inclined to playing hard, but ultimately, they too will budge and accept a debt consolidation plan. Besides this, it is also a factor that all collection agencies will go on to get some commission amounts from the accounts which they have acquired, and thus they will be willing to accept when a reasonable offer for debt settlement comes, which will also be profitable

You must visit to learn more about debt consolidation methods and tactics.

Wrapping things up

Debt consolidation loan is a feasible option for paying your loans off quickly. You will also save money because the interest rates that you pay will be lower.  Hopefully, this article has helped you to acquire some knowledge about debt consolidation loans.