How to avoid mistakes in debt consolidation

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Divorce, like any big event in life, can affect the finances of both partners.

In 2015 freelance writer Miranda Marquit walked away from divorce with just over $ 15,000 in joint debt. She made small automatic payments on the accounts for the first couple of years, but in 2018 she decided to seriously get rid of him.

She responded to a flyer she received in the mail offering a debt consolidation loan at a low 2.9% interest rate.

“It was pretty tricky in my opinion,” says Markuit. CNBC Select… “I had excellent credit at the time, so I thought it was a dizzying dunk. I looked and used my ‘custom code’ and got some feedback on a program that would suit my needs. “

Markuit thought she was signing up for debt consolidation loan… She accepted the offer, entered her checking account details, and gave permission for the company to start accepting payments.

It wasn’t until the creditor sent her a letter stating that he was going to sue for non-payment that she returned and reread the documents.

“I thought it was one thing and didn’t read it carefully,” she says.

Marquith realized that she had actually been in debt settlement for over a year, and her loan had collapsed without her knowledge.

Debt Consolidation vs Debt Repayment

The difference between a debt consolidation loan and a debt settlement program is significant.

Debt Consolidation Loans personal loans through a company like SoFi or Pay which combine your various debts, such as credit card bills and loan payments, into one. Instead of paying multiple bills every month, you make one monthly payment to a new lender. This usually results in lower interest rates and helps to simplify and streamline bill payments by centralizing them in one place.

But debt settlement, on the other hand, is different. Typically, debt settlement involves a third party company negotiating with a lender about your debt for a lesser amount than your debt. In these negotiations, you make monthly payments to the debt settlement company, which ultimately go to an agreed lump sum payment that completely “pays off” your debt.

Debt settlement sounds promising, but the process can be risky. An amicable settlement may not always be reached and it may take a while, so your credit will be damaged as your bills go unpaid. (Payment history is the most important factor it defines your credit rating.) The lender may also end up submitting your account to the collection or suing you for debt (which is what happened with Marquit).

And since your bills go unpaid, you collect late fees until the interest.

There are no guarantees with debt settlement programs. Be careful before subscribing to it. Always do your research and look for any programs that promise debt relief, which is too good to be true. Check with a debt settlement company in advance. state attorney general or local consumer protection agency… IN Federal Trade Commission The FTC also recommends entering the name of a potential debt settlement company along with “complaints” in a search engine to find any testimonials or claims. Alternatively, consider visiting non-profit credit advisor who can teach you how to manage your debt yourself.

Markit’s simple mistake

Markita’s final result

After paying off part of the debt and going through the lawsuit, Marquith still has one account in the collections. She works with credit counselor pay off and rebuild her credit rating

Marquit also uses refund credit cardthen Capital One® Quicksilver® Cash Rewards Credit Cardto make some extra money from her expenses.

After going through this experience, Marquith advised others to carefully read all financial programs written in small print before registering and continue always. check your credit score

For those in a similar debt situation, contact National Fund for Credit Counseling (NFCC), which offers a portal for calls and get a free credit guide from a non-profit credit advisor. This organization can help you with problems such as paying off debt, preventing foreclosure, and managing your student loans.

Capital One® Quicksilver® Cash Rewards credit card information has been independently collected by CNBC and has not been verified or provided by the card issuer prior to publication.

Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article are solely owned by the Select editors and have not been reviewed, endorsed or otherwise endorsed by any third party.

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