Companies That Help With Debt Consolidation – Learn more about the pros and cons of both of these debt settlement approaches to help determine which is best for you.
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Companies That Help With Debt Consolidation
As counterintuitive as it may sound, it cannot be overemphasized that if you are drowning in debt, you absolutely need to look for a real solution. You’ve heard of two common forms of help—debt consolidation and credit counseling—and you’re wondering which is right for you. Good. You have to make a choice and move forward.
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But understand that it’s not exactly an either/or situation. Credit counseling can actually lead you to choose a plan of action that includes some form of debt consolidation.
At its most basic, debt consolidation involves consolidating multiple debts into one, which both simplifies your debt and makes it easier to pay it off. There are three main ways to do this – debt management programs, debt consolidation loans, and debt settlement plans – but we’ll focus on the first two.
Debt management programs include a carefully designed payment schedule that consolidates credit card debt into one affordable monthly payment.
The programs are created by a nonprofit credit counseling agency that works with your credit card company (or companies) to lower the interest rate on your debts and get you an affordable monthly payment.
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The counseling center receives your monthly payments and distributes them to each of your creditors in an agreed amount.
In such programs, you agree to stop using credit cards. The trade-off is that you get lower interest rates and lower monthly payments on your existing credit card debt, allowing you to pay off the debt in 3-5 years.
It should be noted that debt management programs are NOT loans, and you do NOT receive debt relief. They seek to eliminate debt by reducing interest and monthly payments.
Debt consolidation loans, on the other hand, are exactly what the term implies: you borrow to pay off debt.
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You take out one large loan that allows you to pay off all of your credit card debt. After that, you pay off the large loan in one monthly payment. These loans come in many forms, but they are usually through home equity or personal loans.
Debt settlement is a last resort for debt consolidation. A debt settlement attorney or company helps you and your creditor agree to pay less than you owe to settle the debt. However, there are many complications with this program, not the least of which is that your credit score drops significantly (about 100 points), and the fact that you haven’t paid in full is a downside that ‘appears on your credit report for seven years.
All debt consolidation methods simplify the debt settlement process. Making a monthly payment is easier to track and helps eliminate late payments and annoying collection calls.
Debt management plans lower the interest rates on credit card debt to make it more affordable and create a schedule to eliminate it completely. By not using credit cards during the process, you don’t sabotage yourself or add more debt. Over time, this method improves your credit score because you will pay on time.
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Debt consolidation loans can take all of your unsecured debt, including student and medical debt, in addition to credit cards, and consolidate them into one debt with one monthly payment. This makes budgeting a simple process. If it is a home loan, the interest paid is not taxable.
“It won’t reduce your total debt, but with a lower interest rate, it can provide significant savings in the long run,” said Cheyne Steiner, CEO of Crediful.com. “I recommend going this route if you have a good credit score and qualify for a low interest rate, especially if any of your debt carries a relatively high rate.”
Debt management plans only apply to credit cards, and if you miss a payment, you’ll lose the interest rate concessions made by the card companies. This method also requires discipline, as you are forgoing revolving credit except in emergencies. Most credit card companies will lower your interest rate, but they are not forced to do so.
Debt consolidation loans are usually secured loans and this is evident in the case of a home loan. You’re putting your home at risk if you don’t make your payments. If you get an unsecured loan, the interest rate and monthly payments will be higher. Your credit score will also decrease if you participate in a debt consolidation program.
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Be careful what you include in debt consolidation. If you have interest-free or low-interest loans, such as medical bills, and combine them with high-interest debt, you negate some or all of the benefit. Also, don’t focus on your monthly payments to see how much interest you’re paying. A long-term loan usually lowers your monthly payments but increases the total amount owed. Consolidating federal student loans ends any protections and repayment options associated with them.
A potential problem with debt consolidation is that it doesn’t address the behavioral issues that got you into debt in the first place, notes CPA Ben Watson of DollarSprout.com. You can’t keep racking up multiple lines of credit at once when you’re trying to get out of debt. Also, Watson says, be wary of plans that require you to pay extra money in the form of a “closing fee.”
If the idea of borrowing money to get out of debt seems counterintuitive, it is. At the very least, you can talk to someone who can explain the alternatives and help you choose a path to a more solid financial footing.
That’s what credit counseling is all about. A credit counselor discusses your financial situation to find a reasonable solution for you. You’ll need to give your credit counselor a lot of information—how much you owe, how much you earn, your expenses, and what assets you have that can help you eliminate or reduce debt.
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It’s hard to be sure you’re on the right track if you don’t understand how bad your situation is and what your options are. If you’re behind on your bills, struggling to make the minimum monthly payments, or if you’re overwhelmed, credit counseling can be a good place to start.
Credit counseling can help you budget effectively, understand your credit report and credit score, create a plan to catch up on delinquent accounts, and help you develop a debt management plan with your creditors. After all, this game may include debt consolidation.
You want to make sure the person advising you has your best interests at heart. Ask how credit counselors get paid. Do they get paid for you following their advice? You want to make sure the advisor has your best interests in mind. Credit counselors may charge a fee, but many not-for-profit services can be provided for free or at low cost.
It is against the law for a credit counselor to require upfront fees before providing services. Look elsewhere. Other warning signs are if the company asks for voluntary fees for its services, claims to be affiliated with the government or law enforcement when they are not, or promises to get out of debt quickly.
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A credit counselor can also be helpful, but it’s important to remember that hiring a counselor will cost money and “there are a lot of free resources out there to help you learn how to manage your debt,” said Oliver Brown, a credit industry analyst. credit card. Insider. “If you decide to go down the credit counseling route, do your homework. Most credit counseling organizations are non-profit organizations, but there are companies that are just trying to make money.”
If you think you have your debt under control and just need to simplify and lower your monthly payments, debt consolidation seems like a good way to go. Steiner recommends this approach if you have a good credit score and can qualify for a low interest rate.
The more complicated your circumstances, the more credit counseling makes sense, if only for your own peace of mind. If you need to resolve a problem immediately and learn how to prevent it from happening again, a financial professional can guide you on the right path to financial stability.
During his 40-year newspaper career, George Morris covered just about everything: Super Bowlers, evangelicals, World War II veterans and ordinary people with extraordinary stories. His work has won numerous awards from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can’t, and he’s happy to suggest how you can do the same. bureau reviews to improve business history and complaints.
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