Our client sat down and sighed deeply. He had a plastic bag which he emptied on the desk. Ï just don’t know what to do”he said. Ï’ve tried to borrow money to pay off these debts, but the banks keep turning me down”. He was interested in getting an unsecured debt consolidation loan, to pay off existing debts, and hopefully clear his negative credit report at the same time. It had to be an unsecured loan, because he didn’t have any real estate or other collateral to offer the prospective lender. He didn’t have much of an income either, relative to the amount of debt, and finally, his credit report indicated, that he hadn’t lived up to his financial commitments in the past.
Naturally, the banks and other lenders he approached turned him down, which was depressing, but which actually turned out to be a good thing anyway, since it was this predicament that brought him to my office.
Had a lender actually lent him the money, he wouldn’t have achieved his objectives anyway, but would have simply ended up further in debt than he already was, and this is the reason why
Unsecured debt consolidation loans provide no tax benefits. They are usually high interest loans, higher than the credit card loans that they will replace. In effect, you just move the debt from one lender to another, and add loan costs. Paying bills does not rehabilitate your credit standing either. If before, you had a collection, or delinquency, upon payment they will change the rating to “Paid collection”, or “Current, was delinquent”. That doesn’t really help, does it?
There is a way to repair your credit, but just paying the bill is not the solution. In fact, as long as you still owe money, you have negotiating leverage. Once you have paid, you have nothing. In the case of my nice middle-aged gentleman, it turned out to be purely hypothetical, since he didn’t have the money to pay the existing loans, or for that matter, any new loan either. What he had, was accumulated credit card debts, growing at the rate of 23% annually, to the point where he couldn’t even service the interest. It’s truly amazing, that $20,000 in debts, will cost around $5,000 each year in interest.
We finally recommended this gentleman to give up being nice, and consider the advantages of bankruptcy. I explained that he was really past the point of no return, since the interest equated out to $450 per month, which he just didn’t have. In his case, the bankruptcy would actually help his cash flow, and speed up his ability to re-establish his credit. The way it was before, he had too many debts relative to his income. Debt to income ratio is the term the bankers use when deciding credit worthiness, something this gentleman would only achieve by discharging debt, and starting over.
The bankruptcy did meet his objectives. He got rid of the debt, and quickly qualified for a new unsecured visa card with a $1,000.00 line of credit
By following our recommendations on credit repair, he will enjoy excellent credit again within a year or so. Further more, he has discharged $20,000 at the same time. What is it they say? Money saved is money earned!!!
If you have a financial problem, give me a call. Oh, you are the gentleman I’ve just written about? I’m sorry, didn’t mean anything by it, Uh, er, O, I, um I guess that’s ok, What did you say the problem was’ debt consolidation? Um, yes I see. Have you tried……
So if you have too many debts, and not enough money, call and schedule a free consultation with the Law Offices of Paul M. Allen. We have what it takes to get you the fresh start you deserve. Call today. Glendale office: (818) 552-4500 or Cerritos office: (562) 865-4480
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)