In its simplest terms, debt consolidation is the act of taking out a new loan so that you can combine all your current loans into one, resulting in a single monthly payment. Debt consolidation ideally provides a lower interest rate and better repayment terms compared to the existing debt. There are several kinds of debt consolidation options that you might want to consider, and the choice of what route to take depends on your situation and long-term financial goals.  

Get A Free Wisconsin Bankruptcy Attorney Consultation

If you are unsure of what step to take or where to begin, a free consultation with a bankruptcy attorney is a good starting point. A Wisconsin bankruptcy attorney will analyze your financial situation and recommend the best action for your situation. There is no one-size-fits-all solution for managing debt. Consulting with a Wynn at Law, LLC attorney can provide a customized roadmap to a better financial future and help you reach your debt-free goals.

Types Of Wisconsin Debt Consolidation Loans – How Does Debt Consolidation Work?

Debt consolidation is a tool that enables you to combine all your debt and can include (but is not limited to) credit cards, medical bills, student loans, personal loans, and car loans. Debt consolidation can save you money and simplify your budget over time.  

Do Consolidation Loans Hurt Your Credit? 

Anytime you take out a new loan, a credit inquiry is required, translating to a “hit” or inquiry on your FICO score. This credit inquiry means that your score will temporarily decrease by a few points. However, the benefits of no longer missing payments and paying off your consolidated debt will likely outweigh the credit score dip. When looking at the bigger picture, this is a small price to pay so that you can get a better handle on your finances.  

What Are The Risks Of A Wisconsin Debt Consolidation Loan? 

A debt consolidation loan can be a great option if you want to simplify your finances, but this option can be more harmful than beneficial if you can’t keep up with the payments. You must be financially disciplined when you take out a debt consolidation loan.  

The monthly minimum payment for a debt consolidation loan is typically higher than a credit card’s minimum monthly payment. With this in mind, make sure that you can afford this payment for the life of the loan; any missed payments will negatively affect your credit score. 

Borrowing From Your Home’s Equity

If you are a homeowner, a popular tool that you can use for debt consolidation is to take out a Home Equity Line of Credit (HELOC). Also known as a ‘second mortgage,’ HELOCs let you borrow against your home’s equity. However, there are usually fees that you must pay, such as an appraisal fee or an application fee. Due to the costs associated with this option, a HELOC is one of the costlier solutions for debt consolidation.  

Since the line of credit is secured against your property, the annual interest rate is usually lower than an unsecured loan. However, there is a significant disadvantage to using a HELOC to consolidate debt. If you cannot make payments on it, the bank can foreclose on your home. Be sure to consult a Wisconsin bankruptcy attorney or debt consolidation specialist before deciding if this option is right for you. 

Borrowing From Retirement Accounts 

Borrowing against your retirement account is another option for consolidating debt. For example, if you have a 401k, you likely have an opportunity to borrow against the balance of this account. Since the loan is secured against your retirement investment account, this route also provides a low-interest rate and extended repayment period.  

The limit for borrowing against your 401k is typically 50% of the balance or a maximum of $50,000. The payment to this loan can automatically deduct from your future earnings. But be aware, if you don’t pay off your loan in full, you might be subject to early withdrawal penalties and expensive tax consequences. 

Balance Transfer Credit Card 

Another popular option for debt consolidation is applying for a balance transfer credit card. This credit card type generally has a lower interest rate or a promotional balance transfer interest rate, usually a 0% annual percentage rate (APR) for a specified number of months. 

Even if you are saving money initially, it is vital to note the interest rate that you will pay after that promotional period ends, especially if you know that you won’t pay off the credit card within the 0% promotional period. You should also check the credit card’s fees, like balance transfer fees and annual card fees.

Attorney Shannon Wynn is available for a FREE debt consolidation consultation to review opportunities for managing your debt.

The Pros & Cons Of Wisconsin Debt Consolidation – Is It The Right Choice For Me? 

The goal of debt consolidation is to save money and reduce the stress of debt repayment. Let’s look at a scenario; if you have a lot of credit card debt with varying high-interest rates and you decide to consolidate all your debt into a lower percent interest credit card, you will instantly save money.  

Another benefit of debt consolidation is simplicity. Instead of juggling multiple payments, you can make a single payment every month that covers all your debt. You can even set up automatic payments toward the loan from your bank account for peace of mind to avoid missing a payment. 

While your score may dip initially, taking out a debt consolidation loan will help improve your credit score over time. One factor that makes up your credit score is credit utilization, which evaluates the balances you owe versus your credit limit. The lower the credit utilization is, the better your credit score will be. Since the debt consolidation loan will help you pay off your debt, this will lower your credit utilization, resulting in an improved credit score. 

Requirements For Debt Consolidation – How To Qualify For A Debt Consolidation Loan? 

Every financial institution or lender has its own set of guidelines for qualifying a borrower for a debt consolidation loan. The common factors for eligibility are your credit score and debt to income (DTI) ratio. 

The higher your credit score, the better your chance of getting approved and obtaining a low interest rate. If you have a low credit score, you might want to consider getting another person to co-sign on the loan with you. A credit score in the mid-600’s will typically be enough to qualify you for most debt consolidation loans with a steady income and reasonable DTI ratio. 

The DTI ratio is a representation of the percentage of your gross income compared to your debt. Lenders use DTI ratios to determine if a borrower will make enough money to pay for their debt while also covering essential expenses. Financial institutions tend to favor customers who have a lower DTI because this means that the person will be more likely to cover the monthly payments.  

Debt Consolidation Alternatives

Before pursuing debt consolidation, it is recommended that you explore at least one of the alternatives below. 

Create A Budget 

Creating a budget might sound basic, but it is the easiest way to figure out if you can afford to live within your means. Start by writing down how much income you make per month and how much you have to pay in loans/bills each month.  

Then, you can figure out your disposable income, which is income that you’re free to spend on whatever you’d like. You can use part of your disposable income to pay down some of your loans. The most important thing is learning to stick to your budget and making your goals realistic.  

Contacting Your Creditors 

You can contact your creditors on your own to try to negotiate a lower monthly payment or interest rate reduction. Banks and financial institutions have hardship departments that can work with you to structure a payment plan or amend the terms of your loan to make it possible for you to continue to make payments. 

Schedule A Consultation With Wynn at Law, LLC

Schedule a free consultation with a Wisconsin Bankruptcy Attorney so that you can have a better understanding of your debt management options. Take advantage of our expertise to have a better chance of improving your financial status. Contact Wynn at Law, LLC to schedule a free debt consultation at one of our three law offices in Southeast Wisconsin. Give us a call at 262-725-0175.

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How Does Debt Relief Work? 

Debt relief is a set of actions taken to significantly reduce, restructure, or refinance debt to make it easier for a borrower to repay. Debt relief measures are usually needed when debt becomes so severe that the borrower can’t make the regular, required payments.  

Debt relief options can help you in several ways:  

• Extend your repayment terms 
• Lower your interest rates 
• Reduce your debt’s outstanding principal amount 

In some cases, creditors may agree to restructure debt and provide some form of relief rather than suffering a total loss due to the borrower’s inability to meet obligations.

Is Debt Relief A Good Option? 

If your debt has gotten out of hand or you can’t find ways to repay, a debt relief program could be your best option. Debt relief programs can help you better manage the debt payments and improve your financial situation. 

When To Seek Debt Relief 

Nearly 80% of all Americans today are in debt. The COVID-19 pandemic drained the savings accounts of millions of Americans and sent personal debt skyrocketing. While the average debtor can manage to make their repayments, this is not the case for everyone.  

Some of the most common reasons that people seek debt relief in Wisconsin include medical bills, credit cards, divorce, reduced income, unexpected expenses, disability, and eviction. Regardless of the source of your debt, it may be worthwhile to consider debt relief. Individuals struggling with overwhelming debt should contact Wynn at Law, LLC to schedule a free consultation to outline a personalized debt management strategy. Seeking debt relief can mean the difference between chronic stress and freedom from financial burden. 

Types Of Wisconsin Debt Relief 

Being in overwhelming debt can be nerve-wracking and make you feel insecure about the future. However, the good news is that several options can help you get back on your feet.

Bankruptcy  

Bankruptcy is a widespread Wisconsin debt relief option, but it is not a one-size-fits-all solution. There are two main types of personal bankruptcy for Wisconsin residents. The first is a Chapter 7 Bankruptcy, which is sometimes known as “straight” or “liquidation” bankruptcy and is designed to eliminate debt — credit cards, personal loans, medical bills, and other unsecured debt. The second is a Chapter 13 Bankruptcy is a debt repayment plan that consolidates, reorganizes, and restructures debt to make repayment more manageable. 

Bankruptcy can provide the following benefits: 

• Stop creditors and collectors from contacting you 
• Stop all collection lawsuits and actions to collect the debt 
• Stop wage garnishments 
• Stop the Wisconsin foreclosure process and avoid evictions 
• Stop the repossession of cars, appliances, and other personal property 

Chapter 128 Debt Amortization Plan

A Wisconsin Chapter 128 Debt Amortization Plan is a low-cost alternative to bankruptcy that focuses on consolidating debt with a personalized debt plan. This Wisconsin debt relief option can pause late fees, wage garnishment, and accruing interest. The structure of Chapter 128 allows you to customize your approach by selecting the unsecured debt that makes sense for your situation. Typically a Chapter 128 plan will include a combination of debt from credit cards, civil judgments, payday loans, medical bills, personal loans, or collection accounts.

Debt Consolidation

Debt consolidation is a debt relief solution that merges all your debt into a single liability to simplify its repayment. Choosing this option means that all of your unpaid loans or credit card debt are combined into one loan that you can pay off, occasionally even with a lower interest rate. In addition, debt consolidation often allows you to manage your monthly payments easier as it reduces the number of payments being made on your debt. 

Debt Management Plans 

If credit card debt is your main issue, a Debt Management Plan (DMP) might help turn your financial situation around. A DMP is organized through the help of a credit counselling agency and is offered to those who cannot complete credit payments at their current terms. DMPs typically cover unsecured debt, such as credit cards or loans that are not secured by collateral. The counselling agency negotiates a new plan to your creditors on your behalf, and if successful, you can waive certain fees that have been incurred and lower your monthly interest.

Debt Settlement 

A settlement allows you to negotiate with your creditor to waive a portion of what you owe so that you can more easily make your monthly repayments. Depending on what you can negotiate with your creditor, settlement agreements can reduce your debt significantly. Although there’s no guarantee that a creditor will waive a portion of your debt obligation, a successful settlement results in you having to pay a far less amount than what you owe, placing you in a better position to repay them. 

Debt Forgiveness 

Debt forgiveness is what happens when a creditor agrees to remove all (or a portion) of your debt obligation. This route often involves complex negotiations with creditors. Most creditors aren’t thrilled with the idea of just simply cancelling a debt. However, debt forgiveness can also be achieved through formal bankruptcy proceedings. 

Credit Counselling 

Learning to manage your finances more effectively can make the difference between falling further into debt or paying it off entirely. If you’re struggling to pay off your unsecured debt and have concerns about your credit score, credit counselling can help you finally make some progress. This program educates debtors on more efficient ways of paying off their debt and avoiding additional debt in the future. Credit counselling is a requirement for individuals that file for bankruptcy in Wisconsin.

What To Know Before Applying For Debt Relief? 

Negotiating to restructure your debt can seem like a daunting task, but know that you’re not alone. Wynn at Law, LLC can help you explore your debt relief options and help you regain financial stability. 

Speak To A Wisconsin Bankruptcy Attorney 

If your outstanding debt is unmanageable, and you’re considering all of your Wisconsin debt relief options, speaking to an experienced attorney can help you decide the best course of action. If filing for bankruptcy is a good option for your situation, a bankruptcy attorney is crucial to navigate the complex process successfully. Having a bankruptcy attorney at your side can help you become successful at eliminating your debt and save you money. 

Beware Of Debt Relief Scams 

Fraudulent debt service companies often target vulnerable consumers by using a false promise to significantly reduce or eliminate their outstanding debt. When dealing with any debt relief company, it is crucial to do your homework to ensure their legitimacy. The Wisconsin State Attorney General’s office and the Better Business Bureau can provide the information you need to validate the legitimacy of any debt settlement company you intend to hire. 

Interest Rates 

Interest rates will always have a massive impact on your monthly payments. If you decide to pursue debt consolidation, always make sure to compare your old interest rates to the consolidated rates. In addition, be careful about accepting terms that reduce monthly payments but greatly extend the amount of time you will have to repay. While you might be enjoying lower monthly payments on the new loan conditions, you could end up paying more over the entire length of the loan.

Debt Relief Fees 

If you’re considering enrolling in a debt management plan, make sure to be aware of all fees before committing.  

Tax Implications 

Any time you negotiate with a creditor to reduce your outstanding debt, the amount the Creditor “forgives” can be considered taxable income. Therefore, always take tax implications into account when deciding which debt relief option is best for you. 

Does Debt Relief Affect Your Credit Score? 

Depending on which type of Wisconsin debt relief program or method you choose, the impact on your credit score can vary. Some effects can be temporary, while others can impact your credit score for up to a decade. However, missing payments will also negatively impact your credit score. If you are in a financial position where you can’t meet all of your debt obligations, many structured debt relief options could be better for your long-term credit score. 

Schedule A Free Bankruptcy & Debt Consultation With Our Wisconsin Law Firm 

When it comes to resolving your debt issues, you don’t have to go through it alone. If you need help negotiating with creditors or creating a debt management plan, it’s always better to consult with an experienced bankruptcy and debt relief attorney. 

Wynn at Law, LLC’s attorneys will review your situation and provide you with practical legal advice. The goal is to help you move forward and become debt-free. Contact us today for a free Wisconsin debt relief and bankruptcy consultation. 

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