Debt Consolidation Programs
If your credit card debt has soared to an amount that seems impossible to pay off, using one of many debt consolidation programs could mean help is on the horizon. In fact, there are an almost infinite number of companies and services that offer to help you clear your credit card and unsecured debts. But before you click on that ad promising "quick and easy debt consolidation," stop for a moment and consider if you truly know what you're getting into.
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These days, debt consolidation has become a catch-all term for some of the most popular debt relief methods - such as debt management, debt settlement, or a consolidation loan. But in reality, these options are so vastly different that if you mistakenly sign up for the wrong service, you might find yourself in worse financial shape than when you started. On this site, you may find all the information you need that will, hopefully, help you narrow down your debt relief choices so you can be connected to the right company for you.
One option that has been proven successful in helping many people reduce or even eliminate unsecured debt is to enroll in a debt management or debt consolidation program, where you will typically combine all your high-interest credit card bills and other unsecured debts into a single, lower payment made to a consumer credit counseling agency.
A credit counselor will then deal with your creditors on your behalf and make proposals that are all geared towards getting you a more affordable repayment plan. These proposals may include lowering your interest rate or waiving any penalties and late fees that may be in your account. The goal is to help you direct more of your payment into paying off your debt's principal amount versus simply paying the interest.
Debt Consolidation vs. a Debt Consolidation Loan
Be careful that you don't confuse a debt consolidation program with debt consolidation loans. When you take out a loan, you will typically take all your high-interest debts and combine them into one lower interest payment. In some cases, there is NO repayment plan, no dealing with a credit counselor, or getting educated about budgeting or money-management skills.
Getting a debt consolidation loan does work for some people, usually those who have good spending habits and make timely monthly payments on their loan. But sometimes, people who take out a debt consolidation loan only end up incurring high-interest credit card payments all over again. It's a debt quicksand, if you will. What happens then is that you may be now responsible for multiple high-interest credit cards plus a debt consolidation loan. Scenarios such as the one we just described, exemplify but one of the many reasons why we encourage so many people to at least consult with experts who specialize in debt relief and can help consumers sidestep some of the potential pitfalls.
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Debt Settlement - Another Option
A third option (when considering debt consolidation programs) is debt settlement - a perfectly legal solution for many consumers in desperate need of debt relief. Typically when you settle or negotiate your debts, companies will agree to "forgive or settle" your debt for a considerably lesser amount than what's owed. Debt settlement clients are often advised to stop paying their bills and instead save up cash that this then used to negotiate a one-time, lump payment (the settlement).
These days, many credit card companies are willing to settle consumers' debts because if they "sell off" what's considered "bad debt" - or the amount they are likely not going to be able to collect from you - to a third-party debt collector, they will often receive as little as 10 cents on the dollar. And if you decide to file bankruptcy, they will not get paid at all. What ends up happening then is, if those creditors receive a reasonable offer to settle from you, or made on your behalf by a debt settlement company, they may be likely to agree to settle your debt instead.
But keep in mind that like other debt relief services, debt settlement also presents its own set of risks and negative outcomes. With debt settlement, your credit score will likely suffer. Negative marks may continue to hit your credit score until creditors get their settlement - which means your credit score will get dinged while you save up money to negotiate the settlement. Some creditors may even send threatening letters or even sue you to collect the full amount that you owed.
Consider this, with bankruptcy, your creditors will stop collection efforts as soon as you file. Not so with debt settlement. Another red flag: the Internal Revenue Service might consider forgiven debt to be taxable income. In some cases, that amount can push some people to fall back deeper into debt because they did not consider the tax consequences.
Carefully Compare Your Options
The debt reduction methods we outlined for you do work for some people, and may even help you resolve your debts as well - provided you work with a qualified and experienced company.
As a safety measure, we suggest you look into members of the National Foundation of Credit Counseling (NFCC), the oldest network of non profit debt management companies that regulates debt relief counseling groups. True non profit debt management companies usually offer free programs regarding debt consolidation counseling, money management, and other debt relief services, while those that have fees (or request contributions) typically keep the rates low and affordable.
Help is Available
We can help you get in touch with qualified companies and organizations that offer a host of debt relief services including debt consolidation programs and other valuable money-management tips. Remember, no matter which option you choose, it makes sense to explore your legal debt relief options and get on the path to financial freedom. Your peace of mind is worth it, and there's nothing better than taking control of your own financial future and becoming debt free!
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