Consolidating or Reorganizing Debt, NOT Debt Consolidation and the Truth Uncovered

Updated: Dec 7, 2020

Revolving debt is very expensive and now during a time of crises and beyond you need to think about the debt you currently have and perhaps reorganizing it before you are unlendable.

You're in debt with many high credit card balances and the Coronavirus strikes our country. You have been told not to come to work due to the state mandates that have been put into place to stop the spread of the Coronavirus. Perhaps you are uncertain about the future of your career and thinking that maybe you need to reorganize your debt situation and play it safe.

Having high credit card balances flat out sucks! On top of that, we have a global pandemic that makes us even more vulnerable financially speaking. Now you're thinking about the alternatives just in case you don't get back to work soon, Or even worst-case scenario your company takes a serious blow financially which can lead to the inevitable outcome of unemployment. The point here is not to scare you, however, it is to make you think about your situation and to protect yourself in a worst-case scenario.

As stated by the Cambridge Credit Counseling Corp., usually, your minimum monthly payment is 2-4% of the principal balance depending on your banking institution. Let's say that your monthly payment will be 2% of the principal balance. That means, on a $1,000 purchase the minimum monthly payment you will be asked to make is $20 ($1,000 x 2% = $20). How much of that payment will go toward paying the principal balance?

Well, we've already figured out that the monthly interest rate (based on an 18% APR) is 1.5%. So, your credit card company will be charging you 1.5% interest on your balance every month. We can now take the balance of $1,000 and multiply it by 1.5% which gives us a monthly interest payment of $15. Now you're seeing the problem, right? You've just made a minimum payment of $20 toward your $1,000 TV purchase and $15 of that payment will be used to pay just the interest. This leaves only $5 of your $20 minimum monthly payment actually going towards paying down your debt!

One thing you want to really avoid down the road is considering debt consolidation or debt settlement programs. They temp financially distressed people with the illusion of lower interest rates, lower monthly payments, and simplified debt relief plan.

Debt consolidation companies mislead you and promise one thing and deliver something completely different. A debt consolidation program uses a consolidation loan which is a refinanced loan with extended repayment terms.

A lower interest rate is predicated on your existing credit and is not a guarantee when you consolidate, this certainly does not mean that you eliminate your debt. In addition to debt consolidation, also be wary of debt settlement programs. Most of these companies do not have your best interest at heart, they're in the business to make money of course.

Debt relief companies rank at the top of the consumer complaints received by the Federal Trade Commission each year. That being said, there are non-profit organizations that actually want to help people that are in financial distress. If you find yourself in this situation you can try organizations such as NFCC, CCCS, and In Charge Debt Solutions.

One of the best methods for paying down debt is taking these steps:

7 Steps to Financial Security

  1. Save $1,000 for your emergency fund

  2. Pay off all debt, except the house. (Paying down the smallest to the largest balances creating a snowball effect.)

  3. Save 3 - 6 months of expenses in a fully-funded emergency fund.

  4. Invest 15% of your household income into your retirement account.

  5. Save for your children's college fund.

  6. Pay off your home early.

  7. Build your wealth and be charitable.

As mentioned above in the 7 steps to financial security this is the fastest way to eliminate your debt. When you consolidate your debt or work with debt consolidation companies you only treat the symptoms of your problem and never get to the core issue that got you into debt in the first place.

Look at debt as if it was the “Coronavirus” and if you free up your credit cards, lock them up if you have to and use them for emergencies only. Then you can spread the one payment out with your 1 month grace period allotted by the credit card companies to pay back with more time if necessary.

If you find you're not in financial distress, and you just want to remove the compounding interest of your revolving credit cards or your credit card balances are just a little too high and situations related to the Coronavirus pandemic have affected your finances in an unforeseen way.

This can be an option for you to help you eradicate your credit card debt quickly so you may jump into the seven steps of financial security a lot sooner and lock up those credit cards and a safe if need be.

If you’re the type of person that is good with credit cards for the most part and can manage them correctly, then certainly use them as a tool to get points for groceries, fuel, and other necessities and pay them off at the end of each month.

The last thing we want anybody to do is to pay off their credit cards with a personal loan to then rack them back up months later. If you want to learn more about credit, read this article, “Your Credit and Information You Need to Know” to learn about how credit works in detail.

In conclusion

You want to avoid being in the category of “unlendable”, meaning your credit cards are all at a 70% consumption level and banks will not allow you to consolidate them even with relatively good credit.

Your credit cards should not be over 30% utilized, and if they become over 30% consumed and greater on all your accounts you stand the risk of being in the category of “unlendable” and you won’t be able to get a loan to consolidate all your credit cards. So try to avoid this at all costs, Because this is how the debt consolidation companies and debt settlement programs target and then pray on people.

Consolidating on your own terms will put money in your pocket immediately without, "taking it on the chin" pardon the pun. This all being said, for this to work you MUST change spending habits or you just simply move the debt at a better rate. Rates are at all-time lows (Click here now) to get matched with a top-rated lender in the network for the most competitive rates available through this link and get your debt reorganized today.

A smooth transaction. I was matched with the appropriate lender and the application process was smooth and fast. The turn around time from start to finish was less than 48 hours. Would definitely go this route again if necessary.

- Julia Steinberg

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