Michigan Loan and Debt Consolidation Information
Since there are many different options offered to help you achieve relief from your debt, our experienced debt relief attorneys will advise you about what type of debt relief is best for you.
Generally, debt consolidation is a service provided by companies who pay your creditors with a portion of the money you pay to the debt consolidation company. While this may be a useful service, there are many risks you should consider. Before hiring a debt consolidation provider to manage payments to your creditors, you should consider:
1. When are your payments due to the debt consolidation company? Weekly, monthly, etc.?
2. Have your creditors agreed to participate in a consolidation program?
3. Have your creditors agreed to accept the payments made by the debt consolidation company as satisfaction of the monthly/weekly/etc. payments YOU were contractually obligated to make?
4. Will your creditors lower your monthly interest rate?
4. Will your creditors charge you late fees, administrative charges, etc. if your minimum contractual amount is not paid by the debt consolidation company?
5. Have your creditors agreed not to pursue you in court or go after a money judgment or wage garnishment while you are in a debt consolidation program?
6. How much are you paying per week/month/etc. in fees/costs to the debt consolidation company versus the amount of your payments that are going directly to your creditors?
7. Does the debt consolidation company make regular monthly/weekly/etc. payments to your creditors, or is a lump sum paid at the end of your contract with the debt consolidation company?
8. How long does the debt consolidation company hold onto your money before tendering payments to your creditors?
9. What are the conditions/consequences of terminating your debt consolidation contract prior to the ending date? (i.e., do you get a refund of all your money or is it kept and applied elsewhere?)
Generally, loan consolidation is when you receive a loan to pay-off your other creditors. In other words, you are consolidating all/or a portion of your debt you owe to many creditors into one lump debt you know owe to the lender. Although it may be appealing to make one monthly payment instead of several monthly payments, you should consider the following before you use a loan consolidation to provide debt relief services.
While loan consolidation of all of your debt into a single obligation is appealing and may have a lower interest rate than the credit card interest rate, make sure that you can really repay that amount. Understand clearly the term, and interest rate on the loan. It may be that even lowering the interest rate does not make your present debts manageable but just postpones the day of reckoning.
Find out whether the loan will pay off over the life of the loan, or whether you will owe a “balloon” payment at the end. For most borrowers, balloon payments are just an invitation to another loan, and you never get free of this debt!
Home equity loans may put your home in jeopardy
If you can’t pay your present unsecured debts, your creditor can sue you and try to collect any judgment against you that it receives. If you can’t pay your home equity loan, you might lose your house in foreclosure.
Michigan and Federal laws provide an exemption that protects a given amount of equity in your home and puts that equity beyond the reach of your creditors. If you voluntarily pledge that equity to a creditor (by mortgaging the property), the exemption no longer protects your home.
Understand the program
If you participate in a program where a service negotiates with your creditors or makes payments on your debts for you, understand whether the service promises to lower the amount you owe or the interest rate you pay, or just promises to lower the payments you make every month, without significantly changing your obligation. Know what happens if a creditor won’t negotiate.
Make sure the program deals with all your debt
Some debt counselors confine themselves to dealing with your unsecured commercial creditors, excluding your obligations for child support or unpaid taxes. In effect, they ignore the debts that won’t go away, while channeling your money to creditors whose claims could be discharged in Bankruptcy.
There are several debt management programs with modest cost to you. Approach for-profit or fee-based services with caution and make sure that the service is worth what it costs. Many times it is not.
Make sure that you don’t worsen your situation by paying others to help with debt management. While it is comforting to have an ally in your struggle, make sure that their help has your best interest at heart.
Many of the organizations that run ads on TV, and especially on the Internet, are simply scam organizations, especially the ones that offer to make people “debt free” without payments and without filing Bankruptcy. Their goal is often to sucker innocent people into sending them money. The sad thing is that people actually fall for these scams. As a result many good, honest, hard-working people in Michigan end up sending in a lot of hard-earned money and get absolutely nothing in return – except the sinking feeling of having gotten “suckered” and the heartache of losing hundreds or thousands of dollars that could have been used to take care of their families. It makes us angry and sad. The bottom line: There is no truer saying than,”if it sounds too good to be true….it is”.