Debt Consolidation Companies
In these trying times, can debt consolidation companies give us a little reprieve from paying our credit card bills and other unpaid loans? Think of the extra cash you might get in your pocket that you can now use for food, utilities, or entertainment. Unfortunately, wishful thinking and simply ignoring your debts won't make the problem go away.
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But if you're ready to tackle your credit card bills and other unsecured debt, we can offer you advice about various services such as debt consolidation or debt management programs, debt settlement, or we can help you get information about debt consolidation loans. All these methods have been proven to reduce credit card debt for many people, so to find out which one is best for your needs, it's good to know how each one works.
Debt consolidation is also known as a debt management program, where you will typically consolidate all your high-interest credit cards and other unsecured debts (like gas cards, store charge cards, medical bills, etc.) into one, more structured, and more manageable monthly payment that is made to a credit counseling agency. Credit counseling agencies, in turn, distribute those funds to your creditors in the debt management program. Under a debt management program, a credit counselor will make proposals on your behalf - such as a lower interest rate or the elimination of penalties and late fees - to your creditors.
Once your creditors get a clearer picture of your finances, they may be willing to agree to accept these proposals and allow you to get on a repayment plan that is more affordable for you.
Debt Consolidation vs. Debt Consolidation Loans
Keep in mind that a debt consolidation loan is NOT the same as the debt consolidation/credit counseling form of debt relief. When you take out a debt consolidation loan, you may take all your high-interest debts and combine them into one lower interest payment. However, be aware that while getting a debt consolidation loan is a viable solution for reducing or eliminating debt, in some cases, people who take out such loans end up running high-interest credit cards again.
Under that scenario, you may be responsible for your high-interest credit card bills plus a debt consolidation loan. The situation may worsen if you use your home to secure a loan; if you default on the terms of your loan, you may be at risk of losing your home.
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Debt Settlement - Another Option
In addition to debt consolidation, companies offer debt settlement - another legal solution for getting out of credit card debt - provided you find a company that has your best interests in mind. When you negotiate your debts, creditors may agree to forgive or settle your debt for a reduced amount than what you originally owe.
Debt settlement companies will usually advise their clients to stop paying their bills and save up cash that they can then use to negotiate a one-time, agreed-upon fee (the settlement). But be aware that debt settlement may negatively impact your credit score (as a result of missing payments) and may lead to some creditors sending you threatening letters or even taking legal action against you. And once you settle your debt, the Internal Revenue Service may consider the amount of forgiven debt to be taxable income.
So before you consider debt settlement or any other type of debt relief including companies doing debt consolidation, make sure you understand how much debt settlement is likely to save you and get a clear picture of the amount of time it will take to realize those savings. Also, clearly understand the credit and tax consequences of debt relief as well. Debt relief can help to reduce stress over finances and save a substantial amount of money, but you need to be an educated consumer who clearly understands both the pros and cons of debt relief before moving forward.
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