A Consolidation Loan May Be a NecessityA consolidation loan allows you to put your debts into a single loan and make one payment every month. It can be a life saver if you use it properly.If you are heavily in debt - begin by following these guidelines to help you avoid losing everything. Contacting Your CreditorsContact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a level you can handle. If you wait until you are turned over to a debt collector, you may not be able to recover.Dealing with Debt CollectorsThe Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you are at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.Managing Your Auto and Home LoansYour debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. 2nd mortgage loans are tied to your house so proceed with caution.Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services. Most automobile financing agreements allow a creditor to repossess your car any time you’re in default and no notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as any towing and storage costs incurred in order to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report. If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term. If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you. If you have tried all of the above with no success, a consolidation loan may be your next step. One thing to keep in mind. If you do get a consolidation loan, make very certain to make regular and timely payments and avoid starting any new credit. The idea is to make your finances manageable and to consolidate them into a single payment. Opening new credits will put you right back where you started, or put you in even more of a financial bind. In other words, consider a consolidation loan if you need it but take on no more credit until it is paid off.
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