What happens if you don’t pay off a debt and ignore a collector?

“What happens if I don’t pay off my debt?”
This question often comes to mind when we are drowning in debt. But unfortunately, we can’t ignore our debt; if we do, the problem becomes more serious.
The longer you ignore your debts, the more you will lose money in interest, which will create more stress.
Actually, the effect of ignoring a debt depends on its type.
So, before we learn the consequences of not paying a debt, let’s see the types of debt and the effects of ignoring them.

The total debt picture of America and the effects of not paying them off

Name of debt Amount of debt people owe What happens if you don’t pay off the debt What to do to pay off the debt
1.Student loan debt $1.4 trillion You could end up in court if the lender or a collection agency sues you. > Refinance or consolidate your private student loan.
> Change your federal repayment plan or take out a direct consolidation loan to pay off the debt. You can be eligible for deferment or forbearance as well.
2. Housing debt (Mortgage loan) $8.63 trillion The home will undergo foreclosure and will be set for auction. Consider refinance or short sale.
3. Credit card debts $931 billion Creditor or collector will file a lawsuit. Consider debt settlement, consolidation, or bankruptcy.
4. Auto loan debt $1.22 trillion The lessor will repossess the car. Refinance your car loan.

Source: https://www.cnbc.com, https://www.nerdwallet.com/

What are the other consequences of not paying off debt?

1. Ignoring debts can affect your credit score negatively

Remember, 5 factors are very important for building a good credit score. You should understand the formula that makes your credit score.

  • a. Payment history (It makes up 35% of your credit score)
  • b. Credit utilization( It makes up 30% of your credit score)
  • c. The age of credit ( It makes up 15% of your credit score)
  • d. A mix of credit (It makes up 10% of your credit score)
  • e. Credit inquiries (It makes up 10% of your credit score)

So, you can understand that the level of debt or credit utilization is 30% of your credit. So, once you accumulate debt or stop making any payments, your credit score gets hurt.
The higher your debt amount is, the more it hurts your credit score
If your debt is beyond your acceptable debt-to-income ratio, then your credit score will get a major dip. So, you should not accumulate debt at all.
If you fall into debt, then you shouldn’t ignore it. Pay off your debts as soon as possible.

2. You will be charged penalty or a higher interest rate

If you ignore your credit card debts, you need to pay a penalty and extra fee for not making the bill payments on time.
The creditor will also raise the interest rate on the outstanding debts.
Every month the outstanding debt will increase, which means you’d have to pay more money.
Most of the time, people lose the ability to repay if the balance becomes too high.
The lender or creditor will report both the new balance and the higher interest rate to the credit bureaus.
So, ignoring debt means losing more money on interest.

3. The lenders or creditors can sue you

Ignoring debts can arise legal issues for you.
The lenders or creditors to whom you owe money can sue you to get the money back.
If the creditors or lenders get the judgment against you, the court can give the order of wage garnishment.

4. You may go bankrupt

If you don’t pay off your debts, the outstanding balance can become huge and in turn reduce your ability to pay them off.
You may have to file bankruptcy to get out of the debt problem.
Once you file bankruptcy, collection calls and garnishment will stop. But the bankruptcy filing will your score.
It will also stay on your credit report for 10 years after filing, which will reduce your ability to get new credit.

What happens if you don’t pay debt collectors?

Ignoring debts is fatal but ignoring a debt collector can be devastating.
Once you default on a loan, credit card, or utility bill payments, the lender or creditor often sell your accounts to a third party debt collection agency. They start contacting you to collect the money. This will also be reported on your credit report, which will hurt your score.
Some people ignore the debt collection calls hoping that the collection agency can’t take serious steps against them.
But the truth is, ignoring a collection agency is not a good thing.

1. You may start getting irritating collection calls

Most of the time, the creditors or lenders sell the unpaid debts to the collection agencies.
If it happens with your debt, the collector will try to contact you.
They can call you or send letters for the money.
The bad part is, most of the debt collectors give threatening calls or use abusive language to get back the money from the debtors.
But they are not entitled to irritate or harass the debtors as per the FDCPA (Fair debt collection practice act) Act.
Remember, if it happens to you, you can make a complaint against the abusive debt collectors.

2. A debt collector can sue you

The debt collector has the right to file a lawsuit against the debtor for the unpaid balance. But to do so, the debt collector has to send a legal notice to the debtor.
Sometimes, they send a notice to give the warning before filing a lawsuit. But they are not entitled to give you a false threat.
If you receive a legal notice from them, you should respond the judgment with the help of an attorney.
Make sure you check your state’s SOL because after it has expired, the collectors can’t take legal action against you.
You need to prove that your debt is time-barred; then your case will be dismissed.

3. You may not be able to get new credit

Ignoring the unpaid debts in collections has a long-lasting effect on your financial health.
As I said earlier, unpaid debts drop credit score, because, it will be marked on your credit report for 7 years.
Remember, credit card companies or lenders will check your credit report before approving a loan or credit.
After seeing an unpaid debt listing on your credit report, they may not approve you a loan or credit.
Sometimes they approve the loan with a higher interest rate.

4. You could be rejected for a good job

Potential employers usually ask for a credit report from a job applicant.
Once they see negative listing on a credit report, they consider the applicant as an irresponsible person.
If it happens, you have to convince the employer by giving logical reason for accumulating debt.

5. You will be under stress severely

Sometimes, debt collectors even sell the accounts to other collection agencies.
The new collection agency may force you to get the money back. They may call you at the office, relatives’ house, or friend’s place, although they are not entitled to do so.
But, the point is, the phone calls, threat, and fear of a lawsuit can mount your stress.
Your health can deteriorate. Thus, you shouldn’t ignore collection calls.
If you think the debt is yours, then talk to them and try to settle the debt.

How to deal with debt collectors when you can’t pay

Since ignoring a debt collector is not a safe game, you should learn the strategies to handle them who are hounding you for the money.

a. Receive the collection call and talk tactfully

Don’t agree with a debt collector for a settlement if you think that debt is not yours. But that doesn’t mean you can ignore them. When you get a collection call, talk to them strategically and ask for debt validation.
Don’t acknowledge the debt over the phone.
Some debt collectors call the debtors even after the debts have expired.
Once you acknowledge the time-barred debt, the clock will start again and you will become liable for the debt once again.
Thus, you should check your state’s SOL for the specific debt.
Gather the information of your debt to understand whether or not the collector is talking about your debt.
You should also ask the collector to validate your debt.
Ask their office address or postal address to make sure they are not fake.

b. Negotiate a repayment plan

If the debt is yours, you should talk to the debt collector for a repayment plan. Tell them how much you can afford by providing the information about your financial situation.
Usually, they agree to settle a debt if you are ready to give a lump sum payment.
If you can’t afford a lump sum payment, you can opt for professional debt settlement service.
If you can’t afford the payment at all, you should seek legal advice; you might consider bankruptcy to get out of it.

c. Make the agreement written

Remember, the settlement agreement or repayment plan should be in writing.
Thus, you can show it if another debt collector calls you for the same account.
Also, keep all the letters you have received from the debt collector along with the payment receipts.

d. Dispute the debt

If you believe that the debt is not yours, it has expired, or you believe the debt amount is unbelievable, then you have right to dispute the debt.
However, you should do that within the 30 days of the first contact.
The debt collector has no right to ask for the money until the dispute is settled.

Lastly, remember that your debt can’t be erased even if it has expired; you are liable to pay it off. Thus, you shouldn’t think that you can escape from a debt by not responding a collector or leave the country to wait for the SOL.
Once you take out a loan, you should try to make the payments.
If due to a temporary financial hardship, you can’t make the payments, then talk to your lender or creditor to get a better solution instead of just ignoring it.
If the financial hardship persists for a longer time and you may not be able to make the payments at all, then seek credit counseling to get help to manage your debt and finance.
The counselor can guide you with the best solution; it can be a settlement, debt management, or bankruptcy.

So, instead of ignoring your debt, face it and try to resolve it to ensure a good financial health.


Multiple debts? 9 Ways to choose a great debt consolidation company

If you have accumulated huge debt and is unable to manage them, then you can seek professional help. You can take the help of debt consolidation companies to get out of debt.
The professionals will deal with your case. They will negotiate better rates with your creditors.
In consolidation, you combine your multiple bills into one single monthly payment. Thus, you wouldn’t have to worry about paying multiple bills every month.
If you enroll for a debt consolidation service, the experts from that company will negotiate with your creditors on your behalf.
But, you should select the right debt consolidation company when you’re serious about getting out of debt.
Scam debt relief companies simply misguide the consumers and reap profits.
Thus, you should consider a few things when you want to know which debt consolidation company is the best.
Here you go:

1. Check the rating with the Better Business Bureau

The company you choose should be a well-known one with experience in providing debt relief solution. Make sure the company is accredited by the Better Business Bureau (BBB). You can check the company’s track record with the help of the Better Business Bureau. You can also check if there were any complaints lodged against them.
The company shouldn’t have many disputes against them. A good consolidation company can negotiate with your creditors in a better way.
You need to provide some of your personal information to this company. So, it is important to know whether or not the company is reliable. Make sure that your personal information is in safe hands.

2. Find out if the company offer debt counseling service

A reputed debt relief company offers debt counseling to provide financial advice to the debtor. The debt counselor guides you on how you can avoid debts in the future. Make sure the company you are selecting provides this facility.

3. Check if the company is accredited by NFCC

NFCC (National Foundation for Credit Counseling) provides correct information about debt relief service providing companies. It is a nonprofit organization with a listing of counselors, from all over the nation, specializing in debt relief services.

4. Make sure the company does not offer quick solutions

Stay away from a company who claims for a quick debt solution. Remember, there is no easy and quick solution to your debt problems. What a debt consolidation company can do is make the process of repayment simpler. They can’t erase your debt magically.

5. Read the consumers review about the company

Before selecting a consolidation company, read the online reviews. Many consumers write their experience regarding the debt consolidation service they took. If you read many negative reviews, then it is not the right debt consolidation company for you.

6. Check if the company is state licensed

You should check the company you are selecting is state-licensed. As per some state rule, the debt counselors should hold a license to provide advice to the consumers.
You should check whether or not your state follows the same rule. Contact your state’s attorney general to know whether or not the counselor and the debt consolidation agency is licensed.

7. Compare the fees

You should Inquire about their fees thoroughly. An authentic debt relief company shouldn’t charge hefty fees. Also, a good debt consolidation company provides free debt counseling service.
They may have a set-up charge, which is relatively low ($0-$75).

8. Make sure the representatives are proactive

Make sure the representatives of the company are happy to answer your doubts. If they don’t show their interest in solving your problems, then avoid the company.
The experienced professionals can give you the best solution instead of the agents who simply work for a commission. In fact, the consolidation company should be happy to answer all your questions.

9. Ask your relatives or friends

Ask for referrals from your friends/family members who have worked with a debt consolidation company in the past. A real review is great for choosing an authenticate debt relief company.
Lastly, be wary of fake, no BBB profile, and no authentic website debt consolidation company. You may get numerous calls regarding debt consolidation service. Before saying ‘yes’ to their service, check all the criteria mentioned here to avoid the scam debt consolidation company.
Remember, ignoring debts can trigger the problem more. If you are facing problems with paying off your multiple bills/debts, then don’t ignore the crisis. You should take the right action to get out of debts as soon as possible. So, if the multiple debts or bills are your concern, then consolidation can be the right option. Go for it.

Here’s how debt consolidation can help you to pay off medical debts

  1. 1. It helps to lower the interest rates on your medical bills
    The interest rates on your medical bills remain relatively high. You can lower the interest rate by consolidating it. You can consolidate medical debts by enrolling in a debt consolidation program. After enrolling in a consolidation program, a debt consultant will negotiate with the hospital authority or debt collectors to lower the interest rates on your medical bills and hospital bills.
  2. 2. It helps to consolidate payments to a single monthly payment
    The debt consolidation process can release you from the hassle of making multiple bill payments to multiple hospitals. In debt consolidation, your monthly bills will be consolidated into a single monthly payment.
    If you opt for a debt consolidation program, the debt consultant, who is working on your behalf, will ask you to make a single monthly payment to the consolidation company. When you opt for a consolidation program, you just have to make the single monthly payment to the consolidation company; the company makes payments to the respective hospitals.
  3. 3. You will get debt counseling for free
    If you enroll in a reputed debt consolidation company, they will provide with you a free counseling session. The debt counselor will assess your income and expense to help you to manage your finance in a better way. They will also give you budgeting tips and savings tips so that you can recover from the financial mess.
  4. 4. You can save money while making the monthly debt payments
    The interest rates on your medical bills will be reduced. So, you need to make lower monthly payments. It helps to set aside some money every month.
  5. 5. Helps you to live stress-free
    Using credit cards for paying medical bills is not the solution. You have to repay the credit card bills in full and within time. Ignoring the medical bills is also not good. The debt collection call will make your life stressed. So, if you feel you can’t manage your medical bills, consider debt consolidation.
    Once you have started making payments toward your debts, you will feel stress-free. Soon you will enjoy a debt-free life.

Few tips to consider to avoid medical debt in the future

  • A. Make sure you check the medical invoices thoroughly
    Many hospitals overcharge for services and medications. Sometimes, they add the medicine or service bill that you never asked for. So, you should check your medical invoice properly for accuracy. It will help you to avoid unnecessary bills.
  • B. Repay your credit card bills if you use it for paying the medical bill
    Remember, credit cards are not free; you have to repay the bill in full. If you had faced a medical emergency and you had to use your credit card, then you should repay the bill on time. Otherwise, you will fall into credit card debt soon.
  • C. Recognize the gap in your insurance coverage
    If your insurance coverage is not for all diseases or service, then you have to remember it properly. Some people think they were covered for the service they availed but they weren’t covered by their medical insurance. After some time, they receive notice from the hospital or collection agency. So, read your insurance terms and conditions properly. Try to get the maximum coverage to stay safe.
  • D. Ask for a repayment plan
    Usually, hospitals or doctor’s office don’t charge a hefty interest rate on medical bills. You can talk to the hospital authority for a repayment plan that suits your budget. You can also discuss your financial hardship to reduce the total debt amount.

How to master the art of moderation and pay off debt

“Be moderate in order to taste the joy of abundance”

Moderation is the key to success especially when you’re trying to get out of debt. Many people think that impulsive people can’t do moderation. While it’s true that genetics and personality influence the purchases we make, overspending is a problem for everyone, irrespective of the personality type.
Some people say that moderation should be organically practiced. There’s no truth in it. Moderation is a skill that you need to develop with time.

How moderation helps to get out of debt

We set up goals to lose weight or pay off debt after waking up in the morning. We decide to not spend a penny throughout the day. But all our best intentions start breaking with each passing hour. Don’t panic. You’re not hopeless. This is perfectly normal.
The brain has a big role in getting your finances under control. It helps you make best decisions for managing your debts. So if you really want to get out of debt, then learn how to control your brain since that would help you make the best decision when it comes to finances.

How to master the art of moderation

Here are a few steps that can help you take care of your brain, master the art of moderation, improve your willpower, and pay off debt quickly.

1. Ask your friends to encourage you every week

A positive attitude enhances your thinking power, increases your self-esteem, and make you believe anything is possible. Just like self-control, positivity doesn’t last for a long time. You need to refill your tank every day.
Ask your friends to encourage and motivate you every week. Ask your well-wishers to keep you accountable. Tell them to ask you these questions every week:
1. Have you restrained yourself from caffeine?
2. Have you restrained yourself from impulsive purchases?
3. Have you made extra payments on any debt?

Ask them to send you inspirational messages every week so that you can get out of debt one day.

2. Reduce stress and increase your willpower

We are too much stressed at the time of managing multiple debts simultaneously. Too much stress is not good for mental health. It can destroy all your plans for moderation. Massive stress shrinks brain cells, reduces your endurance power, and hampers memory. Stress is bad and it hurts your immune system. It also accelerates your aging process.
Meditate for a few hours every day. Research shows that meditation helps to increase your grey matter, improves your willpower, and reduces your impulsive tendencies.
If you’re already stressed, avoid alcohol, nicotine, and caffeine. These things trigger stress and are also quite expensive. So it’s best to avoid them.

3. Focus on your debt at a time for getting best results

I know you have multiple financial obligations and other responsibilities on your shoulder. But do understand one thing. You tend to make the best decisions when you have fewer things in mind. When you have only one thing in mind, you don’t need to worry about making other decisions about money. Your brain focuses only about paying off debts and it thinks of the various ways to get rid of them.
If paying off debt is your goal, forget about all other things. Just focus all your energy on repaying your debts to get maximum results. Cut the clutter, be frugal, make extra payments on your debts, take advantage of a debt relief program, work hard, and follow a budget. Give your best shot to pay back your creditors.

4. Work out every day to have a better self-command

Regular exercise helps to reduce your stress hormone called cortisol. When you’re stressed due to debt or financial problems, cortisol starts controlling your brain. The result is disastrous. You lose all your willpower and willingness for moderation straightway. The best way to burn this cortisol is vigorous exercise.
Regular workout can help to reduce cortisol level. Exercise regularly at your home instead of going to the gym. This way, you can be in the best shape within your budget. Abstain from foods that increase stress and cortisol level.


Self-discipline is important when you’re trying to pay off debt but for that, you need to have willpower. You need to recharge your batteries every night and be ready for a tough fight the next day. Create a perfect ambiance in your bedroom for a good sleep. Avoid all kinds of habits that can ruin your sleep. Your bedroom should be a place of tranquility and peace. You edgy nerves and overworked brain should relax after you enter the bedroom. Your brain has asked you to be frugal, stopped you from making useless purchases, and provoked you to negotiate with your creditors during the day. It needs rest after a long tiring day. So sleep for at least 7-7.5 hours to have a better self-control over yourself the next day.

Credit card debt at a glance
Average credit card balance – $6375
Total credit card debt – More than $1 trillion
Average household owe – $16,883
Source – CNBC

Do unpaid debts disappear? FAQ and answers

Question: Do unpaid debts expire or will I owe them until my death?

Answer: Do unpaid debts go away? Do they expire after sometime? Your old debt will follow you forever, because you owe that money to someone. And the default account will stay on your credit report. However, according to the Fair Credit Reporting Act, unpaid debts will stay on a debtor’s credit report for 7 years from the date of delinquency.

However, based on the federal or state’s Statute of Limitations (SOL), the creditor or the debt collection agency (Companies who buy a defaulted account to collect money) can force the debtor to get the money back for 7 years.

However, the period varies from state to state; in some states, the creditor or debt collectors are liable to collect a debt from the debtor only within 3-6 years.

Unfortunately, the statute of limitations doesn’t wipe out a debt that you owe.

It is because your default account can be sold to the collection agencies multiple times and they can knock you by calling or sending a letter to collect the money any time.

And if you acknowledge the debt, the debt collector can sue you for the money.

Question: How do the unpaid debts affect my credit score?

Answer: If you don’t pay off your credit card bills, the creditors can sell your account to the debt collection agencies after 180 days of non-payment. If this happens, your credit health gets hurt.

Once you don’t pay off the debt on time, your delinquent account will be reported to the 3 major credit reporting bureaus.

As I said earlier, the delinquent account will stay on your credit report for 7 years and affect your credit score negatively.
As I said earlier, the delinquent account will stay on your credit report for 7 years and affect your credit score negatively.

Question: What is a time-barred debt?

Answer: In short, a debt that expires the statute of limitations. A debt that is too old for debt collectors to sue you for the money.
As per the state SOL, debt collectors can sue a debtor for a certain period, usually 3-6 years and longer (7 years).

Question: What happens if the debt collector knocks me for a time-barred debt?

Answer: The Fair Debt Collection Practices Act (FDCPA) prohibits the debt collectors or creditors to sue the debtor for a time-barred debt.
But, debt collectors can call you for a old debt that has expired.
If it happens, you should defend the lawsuit in the court by providing the proof that the debt has expired the SOL.

Question: What should I do if a collection agency contacts me for an expired debt?

Answer: Creditors or collectors can still contact the debtors even for a time-barred debt. And if the credit reporting time limit hasn’t expired, it will show on your credit report and your wages can be garnished as well.
Thus, you shouldn’t ignore a debt collector’s call, no matter how old the debt is.

However, before doing anything, you should verify the actuality of your debt.
To do so, you have to ask the debt collector to validate your debt in writing.

You can also send a debt validation letter to the debt collector within 30 days of the collector’s first call to you.

If the debt collector fails to validate the debt, then you are not liable to pay the debt. And the debt collector has no legal right to collect it from you.

Question: Can I go to the jail for the unpaid debts?

Answer: Some debt collectors give threatening calls to the debtors by saying that they can be sent to the jail to get the money back.
If it happens, then you should make a complaint against the debt collector or the collection agency to your State’s Attorney General.

As per the FDCPA, debt collectors have no right to threaten and use abusive language to a debtor for collection of unpaid debt.
Well, no one has the right to send you to the jail for a debt. Creditors or debt collectors can’t send police to arrest you for a debt.
However, if you default on tax payment and child support, then it will be granted as a federal crime.

Question: When does the statute of limitations clock start?

Answer: The day when you made payment for the last time or acknowledged the debt.

Question: Does the SOL start after it’s expiration?

Answer: The credit reporting time limit is usually 7 years in most states, but the SOL varies from state to state.

Thus, you should check your SOL before making payments on a debt.
Sometimes, the debt collector contacts a debtor for an old debt that has expired.
the debtor agrees that the debt belongs to his/her, then the SOL clock will start again.

Debt collectors often use this trick to frighten a debtor. Once the debtor acknowledges the debt, the SOL starts ticking again and the debt collector gets the right to sue the debtor.

Thus, you shouldn’t acknowledge a debt over the phone. Ask the debt collector to validate the debt. Tell them that you can’t recognize or you don’t think the debt belongs to you.

Question: When are unpaid debts cleared?

Answer: Unpaid debts are cleared in 2 circumstances.

  1. 1. When you pay the full amount to your creditors.
  2. 2. When you settle or consolidate your debts.
  3. 3. When your unpaid debt is no longer listed on your credit report. But in this case, you still owe the money.

Question: When are unpaid debts written off?

Answer: Debts are written off when creditors don’t count the money you owe them in their financial statements. They count it as a financial loss. Creditors are required to write off some bad debts to avoid misleading investors.

If you haven’t paid a penny to creditors for the last 6 months, then they can write off your unpaid debts. Don’t think that your unpaid debts have been forgiven or forgotten. You still owe money and the written off debt will be listed on your credit report. This will hurt your credit score.

Question: How long do unpaid debts last?

Answer: Unfortunately, unpaid debts last as long as you live. They don’t expire. They just become ‘statute barred’.
Usually, unpaid debts, judgments, and charged-off accounts drop from your credit report after 7 years. The statute of limitations (SOL) period also lasts for a certain time period. But what happens to debt after the SOL period is over? What happens after the listing drops from your credit report?
Your creditor can call and ask you to pay the money. But he can’t recover it through the courts. However, if you acknowledge the debt verbally or in writing after the SOL period has expired, then your creditor can take steps to recover the money legally.

Question: How to find unpaid debts

Answer: There are 2 ways to find unpaid debts. Let’s find out how.

  1. 1. Glance through your credit report: Check your credit report to get a detailed information about your unpaid debts. You can find out the name of the creditors, collection agencies, and the balance on the account. You can also view the contact details of your creditors from your credit report.
    You can get a free copy of your credit report from the annualcreditreport.com. Take advantage of this opportunity every year.
  2. 2. Knock the door of your creditors: If you have an unpaid debt but don’t know whom you owe money, then in that case you can contact your original creditor. He can give you an idea about if your debt has been sold or assigned to a debt collection agency.

Question: What happens to old unpaid debts?

Answer: Various things happen to unpaid debts. Initially, unpaid debts are assigned to the in-house collection agency. They try to recover payments from debtors. If they fail to get money, then those unpaid debts are assigned to third-party collection agencies. They try to collect money from debtors and get a hefty commission on the total amount collected. Sometimes, unpaid debts are also sold to junk debt buyers for pennies on the dollar.
Unpaid debts are also reported to credit bureaus within a month. They stay on the credit report for 7 years and 180 days.

Question: What happens to unpaid debts when you die?

Answer: Your debt belongs to you. No one else is responsible for it. Your debt can’t be passed on to your surviving family members. Your family member is responsible for the debt only when he/she is a co-signer on a loan. In another instance, your spouse can be held responsible for the loan after your death in a community property state.
After your death, your estate is settled first. Any remaining debt is paid off from the value of your estate. If the value of your estate is not sufficient to cover your unpaid debts, then your creditors will be paid out at equal percentages until the estate money is finished. Rest of the debts will be forgiven.


How can debt consolidation help when you’re drowning in debt?

Are you facing difficulties to pay off your outstanding debts? Do you find that your financial condition does not permit you to make timely payments? If yes, then the debt consolidation can be a savior for you. Consolidating debts can be great ways to pay off your debts. In consolidation, your multiple debts will be rolled in one single loan. Thus, you can manage it easily once you pay off your multiple debts. You can consolidate your debts by seeking a professional debt consolidation service. You can also take out a consolidation loan from a bank or other financial institution to pay off debts. Transferring balance is also another great way to pay off your debts. Read the article to know in detail.

How can debt consolidation be a savior in paying off debts?

  • Debt consolidation is considered to be one of the best options that can help you pay off your debts. Because it helps in rolling over all the debts together as a single debt.
  • It allows people to consolidate all their debts into one fixed monthly payment. It also helps you to make a lower payment every month.
  • This debt relief option is best for you if you have too many debts and too high-interest rates on them. As with consolidation, the interest rate lowers and the number of debts that you have gets reduced to one.
  • It enables you to stay away from your creditors. The entire negotiation process is being handled by the debt expert on your behalf. You need to deal with one creditor instead of many.

How does debt consolidation program work?

Here are 4 steps to understand how it works:

Step 1: To consolidate your debts, you need to enroll in the debt consolidation program provided by a consolidation company.

Step 2: Make sure you contact an authentic debt consolidation company. Contact at least 2 or 3 consolidation companies and talk about their services. Ensure whether or not the company you are choosing is legitimate.

Step 3: After you enroll in the program, they will review your financial background and determine the total balances owed on each of your debt or credit accounts. Then depending on your current financial situation and your monthly income and expenses, the company will decide on the amount you can afford to pay each month.

Step 4: After evaluating your financial ability, the consolidation company will contact your creditors. They will try to negotiate for a reduced interest rate on each credit account. This lowers your minimum monthly payments and saves a significant money in the long run.

How can you consolidate your debts on your own?

You can take out a consolidation loan with a low-interest rate to consolidate your debts. The consolidation loan can be a personal loan or a home equity loan. But for that, you will be required to have a really good credit score. Make sure you make regular payments on your new loan.

How can balance transfer method help to pay off your debts?

Balance transfer method is another option through which you can consolidate your debts.

In balance transfer, you can transfer the balance from all the credit cards with high-interest rate to one with a low-interest rate. You can also transfer the balance to a new credit card offering you 0% or relatively lower interest rate on balance transfer. This can help you to pay off the debt with ease.

How does debt consolidation affect your credit score?

The effect of consolidation on your credit is actually a positive one. That is because you are not required to miss payments on your debts so as to consolidate them. So, this debt relief option actually helps you save money and improve your credit.

However, you will have to remember to avoid closing down your accounts as much as possible. Because, when you consolidate your debts, you have a tendency to close down the accounts from which you may have transferred the balance. But, when you close down accounts, you end up losing the available credit. This results in higher usage of your credit and that has a negative effect on your credit. So, you will have to avoid closing down all of the accounts as much as possible. This can help you avoid hurting your credit in the process and rather improve your credit.

Lastly, following the right debt relief option is important when you are drowning in debt. Remember, this debt solution is not always a good option. It can be a great option when you are drowning in multiple debts and unable to manage them. Here, you are paying all your debts with a low-interest rate. Sometimes, you may not afford the debt consolidation. Then you may need to pick another debt relief option like debt settlement or bankruptcy. So, analyzing the debts and financial situation play a vital role in choosing the right debt relief option. If you think you can’t choose the right debt relief option for you, you can seek debt counseling for help.