A debt consolidation loan will help you get rid of a number of debts easily and effectively but there are a few legal norms to follow when you apply for such a loan. The law behind this special type of loan that comes with a lower rate of interest governs it application, approval, and use. Since no sensible person in this entire world would like to be drowning in debt and get rid of it soon, this loan helps them in this objective in a great way. If you want to get success in your business than it is important to minimize your debt as much as possible
Debt is a costly thing to carry as it will prevent you from reaching any of your financial goals and even jeopardize your financial health and credit. However, the concept of debt varies from person to person as a few people might consider credit card debt to be bad but a student or mortgage loan to be good debts to have.
However, the truth behind all these is that if you have any form of debt it means you are beholden financially to the creditor. You cannot put the money in your pocket and completely forget about meeting the legal obligations inherent in it well and in a timely manner.
To help you in such situations when you struggle to pay off your debts, the market has come up with different options. These options will help you to make the right decisions in abolishing our debts. These legalized options under the state and federal governments may also work their way out at the same time.
Legal norms to apply
There are a few legal norms that may apply when in any case you find yourself drowning financially. As per the law, you do have the legal rights to declare bankruptcy. However, there are a few primary and secondary issues over here such as:
- When you file for bankruptcy it will always bear a serious and tremendously derogatory mark on your credit.
- It will prevent you from obtaining any credit in the near future and
- Over time this will actually make a few specific loan products unavailable to you.
Moreover, you must know that as per the law there are a few specific types of debts that cannot be discharged under the terms of bankruptcy no matter how bad you want it to be.
Therefore, filing for bankruptcy may be handy at times when all options seem to be exhausted but will always come at a very steep price.
In such a situation, you may need to consider other options such as a debt consolidation loan or debt settlement. You are advised to read some of the debt consolidation reviews so that you get the best help and make the best use of it as well.
Legal implications to understand
It is your actions and inactions regarding taking on and managing debt that will eventually determine your financial status and health. It is therefore required that you understand the legal implications of debt and focus on better management.
- It may seem to you very easy to ignore debt completely but it is very harmful in the long run. Your loan account will be handed over to the collections and you will have to take on calls and mails asking you to make the payments.
- You may deal with your debts in several different ways such as negotiating with your creditors to settle your debt for a lower amount or file for bankruptcy and not pay it at all. In either case, such actions will affect your credit score because as per the law, these actions will be recorded in your credit report and reflect in your credit history for seven years after which the collection accounts will fall off your credit report.
- You may also consider a debt consolidation loan at this point of time to manage your debts. According to law, this is a loan of larger amount often given out at a low rate of interest. Typically, these loans are a personal loan but you can even apply for a secured home equity if you are okay with pledging your asset to get the loan and risk it being taken by the creditors should you fail to repay them back.
- As you are legally obligated to pay the debt you take on, no matter whatever is the circumstance, the creditor can easily pursue you to make the payments through the collectors till the time the statute of limitations run out in the state where you actually stay.
Therefore, the only reasonable, feasible and legal option available to you here is to pay off your debt completely within the loan tenure.
Choosing your option
When you choose one of the different legal options available to pay off your debts, the best strategy to follow to ensure that you choose the best option for you is to depend solely on your own circumstances.
Debt settlement is the most significant debt that people seem to carry is credit card debt. You can get it settled for a lower amount than you owe but there are a few things that you should remember such as:
- Credit card debt forgiveness is a bit tricky and rare.
- It can also prove to be rather costly in nature as you may have to pay taxes on the amount forgiven.
- You must have some serious arrears first to even start a negotiation.
- Then you will have to convince the creditors that you do not have the means to repay the debt and the given situation is very unlikely to change soon.
- If you manage to settle your debt, the creditor is legally responsible to report it to the IRS as the forgiven debt is mainly considered to be your taxable income.
- The amount of tax calculated will depend on the adjusted gross income and tax rate. This means, even if you fall under the low tax bracket, you may easily face a huge bill to IRS.
It is for this reason people go for debt consolidation that does not damage credit score. There are some major debt consolidation firms that may help you big time.
Daniel Ng is a freelance writer who has been writing for various blogs. He has previously covered an extensive range of topics in her posts, including business debt consolidation, Finance, E-commerce and start-ups.