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Stacy B Miller On 4th Apr,19
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Can you consolidate debt when it is in collections and save $?
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You made some mistakes in your financial life and some of your debts have gone in the hands of debt collectors. The debt collection agencies won’t stop pestering you about payments every day, and this is enough to make your life hell. Is there any solution other than paying off the debt in full along with the high-interest rate and penalties?
One feasible solution for you is debt consolidation for collections.

Why should you consolidate collection accounts?

Debt consolidation helps you to simplify your payment process. This is the biggest reason why you should consider debt consolidation for collection accounts. Instead of multiple debt collection accounts, you’ve to make a single payment every month and take care of a single balance only. It becomes very easy to track your progress on paying off debts in collections.

Debt consolidation helps to waive off penalties and late fees. Plus, it helps you to pay off debt at a low-interest rate. All these factors help you to save money.

How can you consolidate debt in collections?

You can consolidate debt that is in collections in 3 ways:

  • (a) Enrolling in a debt consolidation program
  • (b) Taking out a debt consolidation loan
  • (c) Using a balance transfer credit card

Let’s know about these 3 ways briefly:

(a) Enrolling in a debt consolidation program:

In this scenario, you pay off the debt in collections through a debt consolidation plan. You make single monthly payments as per the agreement with your debt counselor.

Usually, debt consolidation companies help you to consolidate debts that are in collections by bringing them under one affordable payment plan. They negotiate with each enrolled debt collector to scale down the interest rate and get rid of late fees.

This is a very convenient option for those people who don’t have a good credit score or assets. They get a chance to repay debts as per their convenience and improve the FICO score gradually. Find out what kinds of debts you can consolidate with OVLG.

(b) Taking out a debt consolidation loan:

Well, this option can help you come out of troubled waters when you have some assets in your kitty. For instance, if you have equity in your home, then you can qualify for a home equity loan and use it for paying off debts. However, this may be a short-term solution. You’re putting your house at risk. If you fail to repay your loans, then you could end up handing over your house to the lender.

Timing is everything when it comes to consolidating your bills with a loan. You have to think carefully before taking out a home equity loan. You need to check out the interest rate on the loan and also calculate how much equity you have accumulated in the last few years.

If your credit score is below 600, then it would be tough for you to qualify for a loan. Plus, if you don’t have any assets, then you have to apply for an unsecured debt consolidation loan, which is quite rare and expensive. Most lenders are not willing to give unsecured loans because the risk is too high.

(c) Using a balance transfer credit card:

When you qualify for a credit card with 0% APR, you can transfer the balance of the collection accounts to this new card and pay it off within the promotional period. Theoretically, it sounds good. But practically, this is not as easy as it sounds. Let me explain why.

First, you have to calculate the credit limit on the new credit card with 0% APR. Is it enough to cover the entire balance? Think! Think!

Next, you have to inform the new credit card issuer that you would like to transfer the entire balance from a credit card account that has been assigned to a collection agency to this card with 0% APR. The card issuer will tell you if there will be problems in paying off the amount due to the collector. If you have proper details (the name of the debt collection agency and the account number), there shouldn’t be any problem.

Well, this option is not for everyone. Your accounts are in collections because you couldn’t make payments to your creditors in the last 6 months or so. If your monthly income has increased and you can make monthly payments on the collection accounts, then it’s time to do some calculations.

If you haven’t qualified for balance transfer credit cards, then it may be difficult to qualify for a card with accounts in collections. Usually, you need to have a good credit score for getting a credit card with a 0% APR offer. So you have to work with the debt collector and create a repayment plan that is suitable for both of you. See also: Balance transfers for debt relief? Think again

What to consider before paying off debts in collections

  • 1. Do you earn enough for paying the fees?
  • 2. How long will it take to consolidate and pay off debts?
  • 3. What can happen if you can’t complete the consolidation process?

Wait! Wait! I have not finished yet

Lenders and debt consolidation companies mean business. They want money at the end of the day. So, they may not guide you properly.

Don’t worry! There are lots of ways to get guidance in the right direction. Let me list a few of them below:

  • 1. Use an online debt consolidation calculator to figure out your savings
  • 2. Explain your problem in debt forums and get proper advice from experts
  • 3. Read the pros and cons of consolidating collection accounts in various ways

Still, have doubts? Post your questions in the comment section below.

Let’s keep talking!!!

Last Updated on: Thu, 4 Apr 2019

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