What to Know About Debt Consolidation in California

Living in California has many upsides, but one of the biggest drawbacks is a cost of living much higher than almost everywhere else in the U.S.

In particular, Californians face high costs for housing whether they rent or own — meaning a larger percentage of their income often goes toward keeping a roof over their head. With less money to go around for other expenses, these high living costs can easily kick off a cycle of taking on debt to afford routine living costs. High living costs can also divert funds that might have otherwise gone toward emergency savings, meaning one single financial catastrophe can pile on even more debt in the blink of an eye.

Debt consolidation refers to a family of strategies meant to help consumers get rid of their debts in a simpler, more cost-effective fashion than trying to pay them down by hand. Here’s what to know about debt consolidation in California.

There Are Multiple Ways for Californians to Consolidate Debts

To consolidate a debt basically means to streamline it. There’s more than one way to go about doing this. Which strategy is the best fit will depend on your credit score, income, current amount of debt and more.

Personal Loan

Using a personal loan or specialized consolidation loan essentially replaces more than one high-interest debt with one, lower-interest monthly payment.

For instance, it’d be easier to make one monthly payment on a loan with 10 percent annual percentage rate (APR) than it would to make monthly payments on five credit card balances, each with APR between 15 and 22 percent.

Average personal loan APRs range from about 10 to 28 percent, although they can be higher or lower. This means Californians with a strong credit rating have the best shot at getting approved for a competitive loan.

Debt Settlement Program

For consumers who have already missed debt payments, and thus already taken damage to their credit scores, debt settlement may be more worth exploring as an alternative to bankruptcy. There are many places to find California debt relief – www.freedomdebtrelief.com is one example of a program that works with many Californians to resolve debts, and there are many other options located around the U.S. worth exploring.

Settling a debt means paying an amount less than the full balance but more than nothing to pay off a debt. Creditors will sometimes agree to accept a lesser settlement in lieu of getting nothing, although not every creditor is guaranteed to play ball. Californians can expect this process to take somewhere between two and five years in total, depending on how many accounts they are trying to settle, how much they are able to save toward the settlement fund each month and how willing creditors are to strike a bargain.

The reason this falls under consolidation is because participants will often cease making payments on their balances in settlement and instead of will make just one monthly payment toward a special account that will later be used as the settlement funds. There are possible risks and rewards involved with settlement, so be sure to fully understand what the process entails before signing up.

Debt Management Plan (DMP)

Credit counseling agencies inside of and outside of California offer in-person and remote credit counseling, particularly a free initial appointment to discuss debts and budgeting. From there, many consumers have the option to pursue a DMP, under which they’ll make a recurring monthly payment to their agency. The agency will be responsible for splitting the funds up and passing them along to creditors. Creditors in turn may give consumers a break on interest or fees as long as they stick with the DMP for three to five years until the debt has been repaid.

The main thing to know about debt consolidation in California is that there are a host of different ways to go about it.