Find the Best Debt Consolidation in Santa Barbara, CA

The need for debt relief in Santa Barbara

Americans love using credit cards, leading to an average credit card debt of over $9,000 among households carrying balances. In California, the average is even higher at about $10,500, which is the fourth worst in the nation.

If you’re stressed by multiple monthly installments, unaffordable payments or collection calls, debt consolidation can help. Debt consolidation refers to a range of professional debt relief services such as debt consolidation loans, debt settlement and credit counseling.

Debt consolidation in Santa Barbara

A debt consolidation loan rolls multiple high-interest debts into one monthly payment at a lower interest rate, saving you money on interest payments and late fees and reducing stress over remembering different payment dates and amounts.

Debt consolidation loans work best for those who:

• Have under $50,000 in unsecured debt
• Have a credit score above 630
• Are not delinquent with accounts
• Want to make one consolidated monthly payment

Your credit score determines your loan eligibility, so only those with good credit will get the benefits of interest rates lower than credit card APRs. Keep in mind that application and origination fees may add to the cost of debt consolidation loans and need to be paid upfront.

A debt consolidation loan simplifies the bill-paying process. One larger debt consolidation loan pays off multiple, often maxed-out, credit cards, leaving you to make monthly payments on your new loan with lower interest rates and a longer term. Debt consolidation loans in Santa Barbara do not lower the amount you owe. That’s a different kind of debt consolidation called debt settlement.

Debt settlement in Santa Barbara

Debt settlement companies negotiate with your creditors to reduce balances owed for unsecured debt, especially credit card debt, that is not tied to assets such as a car or mortgage loan (which would be secured debt). Debt settlement companies prefer clients with a minimum amount of unsecured debt (often $10,000).

Debt settlement may be a solution for those who:

• Have $10,000+ in credit card debt
• Have a credit score below 630
• Have unmanageable debt
• Are months behind on payments
• Cannot get a debt consolidation loan
• Want to make one consolidated monthly payment
• Think a creditor might accept partial payment

If you have less than $10,000 in unsecured debt, debt relief options include a personal loan, home equity loan or 0% interest balance transfer credit card.

With debt settlement in Santa Barbara, your credit score will drop because you stop payments to your creditors. Instead, you open a separate account and deposit affordable monthly payments there. The debt settlement process typically takes between two to four years. Eventually, the debt settlement company tries to use these funds to settle with your creditors in a lump sum, and your credit score then improves.

Although debt settlement shows up on your credit report, it does less harm than bankruptcy. The Federal Trade Commission recommends talking with your creditors to work out a repayment or settlement plan instead of declaring bankruptcy, which stays on your credit report for 10 years and involves attorney and court fees.

Remember that debt settlement companies charge a fee for their services. The amount depends on your case but is often 15% to 25% of what you owed or the amount you will pay. This fee may be worth it since, on average, debts are settled at almost 50% of the outstanding balance, according to a Center for Responsible Lending study.

Finally, be aware that the IRS counts forgiven debt as taxable income and gets notified if your debt settlement reduction is more than $600 of what you originally owed. You may pay taxes on whatever was taken off your bill unless you owe more than you own and qualify for the IRS insolvency exclusion.

Debt relief alternatives in Santa Barbara

Credit counseling, also called debt counseling, is another popular debt relief option. During the first session, a credit counselor reviews your personal info and financial situation, including income, expenses and debt. They may also review your current credit report and credit card statements. Have all these details ready to go. The credit counselor then recommends a course of action for debt relief.

Credit counseling in Santa Barbara often results in a debt management plan. This three-to-five-year plan helps you pay off debt faster. For a fee, a company will:

• Consolidate credit card debts into one manageable monthly payment
• Get creditors to cut your interest rate, often by half or more
• Get creditors to stop late and over-limit fees

You must stick to the payment plan to enjoy its benefits. Overdue medical and tax bills and student loans are not eligible, but a tax relief company may be able to help with tax debt.

The California-based nonprofit BALANCE offers debt counseling in Santa Barbara, and the Consumer Financial Protection Bureau has a helpful summary of credit counseling and debt settlement companies services and fees.