When you fall behind on your debts, creditors will do everything they can to get their money back, including wage garnishment. Using a debt consolidation loan to stop wage garnishment can be an option if you don’t want creditors taking a portion of your paycheck.
However, there are some important things you should consider if you want to go this route. Not everyone facing wage garnishment will qualify for a debt consolidation loan, and the wrong loan could potentially make your financial problems worse. That’s why it’s crucial to understand how these loans work and what your options are.
Wage garnishment is when a creditor takes money from your paycheck to pay back your debt. It can be for private consumer debt, such as unpaid credit cards, or government debt, such as back taxes or defaulted student loans. Wage garnishments are usually the result of a court judgment, but some federal debts don’t require a court order.
You and your employer each receive a notice from a court or government agency informing you of the wage garnishment. Your employer must set aside a certain amount from each of your paychecks, usually a set percentage, until the debt is paid off.
Garnishment applies to your pay, whether that’s your salary, wages, commissions, bonus, retirement program, or pension. The garnishment occurs after legally required deductions are taken out — this remaining amount is known as your disposable earnings. The amount to be taken from your disposable earnings is limited per week according to the kind of debt you have:
| Good to know: You can’t be fired for having one garnishment. However, if you have two or more wage garnishments, you lose that protection. |
One thing you can do when you’re facing wage garnishment is to repay the debt. If you don’t have the cash, a debt consolidation loan can help.
Debt consolidation loans are personal installment loans that give you a lump sum of funds upfront. You typically repay the loan in fixed monthly payments, with a fixed interest rate, until the loan is paid off.
You can use the funds from the debt consolidation loan to repay your creditor and avoid wage garnishment. For example, if you owe back taxes, you’d use the funds to pay the IRS; if you owe child support, you’d apply the funds to your court-ordered child support. Then all that remains is to repay the debt consolidation loan.
Just keep in mind that you do have to pay interest on debt consolidation loans, and some lenders charge an origination fee (typically a percentage of your loan amount) for loan processing. This will add to your cost of borrowing.
It can be more challenging to qualify for a loan if you are in this situation, but it’s not impossible.
“Any loan will be difficult to obtain once you have reached the point of a garnishment order being obtained,” said Derek Jacques, a family law and bankruptcy attorney for The Mitten Law Firm. “The vast majority of creditors make multiple attempts to collect and will begin reporting to credit bureaus before they take the step of obtaining a garnishment order.”
Because these negative reports can lower your credit score below what many lenders will accept, consider following these tips to improve your odds of loan approval:
Using a debt consolidation loan can be a great solution in some scenarios. If you can qualify for a loan without a sky-high interest rate, it may make sense to use those funds to pay off your existing debts and stop creditors from garnishing your wages.
A debt consolidation loan can also give you the funds you need to settle with your creditors, sometimes for less than the total amount owed. Having the money on hand to negotiate may help you — though there’s no guarantee.
On the other hand, there are times when using a debt consolidation loan won’t be the best path forward for you. If the loans you qualify for have high interest rates, that could put you further into debt instead of getting you out of it. And if you don’t qualify for a debt consolidation loan at all, you’ll need to explore other options.
If a debt consolidation loan isn’t the best choice for you, consider these options:
If you experience wage garnishment, you may take some hits to your credit, but you can take steps to improve it:
Wage garnishment can be a stressful experience. But by exploring your options and being proactive, you can resolve the situation and avoid it in the future.