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Debt Consolidation

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Why a Debt Consolidation Program?

Everyone knows that every day average Americans have fallen so deeply into debt that even those who have been able to secure employment will have a hard time and may not recuperate entirely from debt unless an intervention strategy is put into effect.

In response, debt consolidation programs have been put into existence by governmental agencies to provide support tools and processes for debt relief through debt consolidation loans.  Professional and expert advice is available from nonprofit counseling agencies that provide step-by-step guidance to achieve the goal of financial freedom through debt consolidation strategies.

What is the difference between debt consolidation and debt settlement?

Although debt consolidation and debt settlement are terms frequently confused their meanings are quite distinct from one another.

When one refers to debt consolidation, it means to coalesce or fuse multiple loans into only one consolidation loan that is paid to only one creditor. Debt consolidation can be put into effect in many ways.  For example, it is possible to secure a collateral loan against a valuable asset. The most important thing is to get a separate loan that will pay the rest of the loans balances. The objective behind a debt consolidation loan option is to take advantage of a lower interest rate or interest rate savings. Focusing on only one payment obligation is not only convenient but effective in managing its payments in a timely and consistent manner.

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    Contrarily, debt settlement is the act of negotiating a debt for a reduced amount or discount. With this in mind, most individuals secure a skilled debt relief negotiator to make a deal in your name.  The process entails defaulting on the loan with the creditor. Instead of paying the loan, the sum is placed in a secured account. Once a case has been filed against you by the creditor, the debt relief negotiator will intervene to settle the loan for less than what is owed on the loan balance.  When the creditor receives payment in full for the amount of the settlement, the remainder of the loan’s balance is deleted from the account.

    In both cases, debt consolidation or debt settlement, there are positive and negative factors to consider.  It’s important to know which one of these debt relief strategies are best suited for your specific situation before deciding to act.

    The following tips may be useful in determining the route to financial freedom.  Notice whether benefits have short or long-term solutions. Keep in mind the relevance of being able to afford payments.

    When is Debt Consolidation the best choice?

    If you want to know whether debt consolidation is the best choice for solving your situation, find out how much you owe, first of all.  An excellent way of acquiring the right information about your debt situation is accessing a copy of your current credit report. The Annual Credit Report website allows you to pull your credit report from all three national credit reporting agencies.

    A debt consolidation loan requires an ideal credit score. Although you can still secure a loan with poor credit scores, your approved credit interest will be much higher with low credit scores.  In such case, debt consolidation loans are not the ideal type of debt relief strategy for your situation since you might fall deeper into debt by taking out a loan on a high-interest rate.

    Research the various offers made by debt consolidation companies to debtors.  When a debt consolidation loan is obtained using collateral, the chances of being approved for a lower interest rate increases.  Most debt consolidation programs are based on home equity loans. Putting your home at risk is at stake. To avoid endangering your assets, you must be able to count on a steady income flow.

    Once your application has been approved, make sure your monthly payments will save you money in the end.  An exact computation of the amount of your monthly payments distribution is typically provided by the creditor.  Another consideration to make is the affordability of the payments. In some cases, it may be necessary to adjust your living style and spending habits due to higher payments.  Finally, once you have verified being able to afford the payment amount each month, review the number of payments and the length of time it will take you to pay the loan. Decide if you are willing to accept taking longer to pay the debt consolidation loan.  At the end of the loan term, since the loan payments are extended, the total amount of interest paid may also be greater than the original loan.

    When is Debt Settlement the best choice?

    Perhaps debt settlement is the best choice in your case if debt consolidation isn’t.  Your credit reports and scores are an excellent source to find out how much you owe in unsecured debt.  The amount you owe may be a decisive element for debt settlement company that will only take clients who owe specific benchmark amounts. In some cases, companies will only work with individuals who owe more than $10,000.  If you’re below this threshold, your application won’t be approved.

    The implications of debt settlement include paying a significant amount at once. Once the creditor agrees to discount a percentage of the original loan amount, many creditors expect to be paid in full for that amount. However, in some cases, they agree to an installment plan.  Review your budget and expenses in case there is money left over to ensure that the debt settlement payments can be afforded. Defaulting on debt settlement payments may bring on added complications such as court summons and having to declare bankruptcy.

    Where is there help?

    A credit counselor is the most suitable person to help you determine which method of debt relief is most appropriate for your unique circumstances. Advising others about credit management matters and debt consolidation versus debt settlement and measuring the impact of their actions makes credit counselors experts on the subject.  Another perk is that a credit counselor will guide you through the process of creating a budget in alignment with the new payment plan schedule devised for you once you have decided to take the debt consolidation or the debt relief path.

    It is highly advisable to hire a debt settlement expert to help you negotiate the terms with creditors if that is the route you choose to go. Your chances of making the best deal increase when you have on your side someone with the know-how and professional relationships to work with creditors and lenders. A Do-It-Yourself strategy is not likely to get the best results.

    You will benefit from researching companies, approaching more than one and comparing their plan of action for you to achieve the goal of a debt-free life. The companies should be AFCC (American Fair Credit Council) accredited or affiliated with similar types of industry monitor. If a company asks you for upfront fees, decline and move to the next one.  Every first consultation should be complimentary.

    A good place to start is at consumer credit card relief  for consumer advocacy and debt relief counseling.  Fill out their application form if you would like to receive more information related to debt consolidation programs and debt settlement options.  Your goal for a debt-free life is possible with the right guidance and management.

    Debt Consolidation Calculator

    If you want to know whether debt consolidation will save you money or not,  you can use our Debt Consolidation Tool to find out. First enter the terms of your debt consolidation loan offer or ideal  scenario. Then, enter your current loans’ terms. Finally, compare the figures at the end of the loans to see the savings.

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    DEBT CONSOLIDATION  FAQ

    Debt Consolidation: What is it?

    To consolidate means to join, to put together, or to unite different loans into one at a lower interest rate and making one monthly payment for debt reductions and easier management purposes.

    Is it possible to consolidate all my loans?

    Not all loans can be consolidated, only student loans, credit card loans, personal loans and other forms of unsecured loans.

    How will debt consolidation affect my credit report?

    The degree to which your credit report and credit score will be affected depends on your payment history. If you make timely payments 85% of the time, your credit score will suffer less than if you make only 50% of your payments on time.    

    How are secured and unsecured loans different?

    A secured debt is taken out against the value of an asset called collateral which the lender will be able to retrieve from you in case of default or delinquency on your loan. Unsecured debt, on the other hand, has no collateral or valued assets backing it up and relies solely on your commitment to pay back.  Credit card debt is the most common form of unsecured loan.

    Is debt management the same as debt consolidation?

    Debt management plans don’t involve a restructuring of your debt. When you consolidate, you put all your loans together into a new account at a reduced interest rate. Debt management also reduces your debt by negotiating interest rates on existing loans, but your original loans stay active.

    Is debt consolidation a loan?

    Debt consolidation requires the creation of a new account under which various loans may be combined. All other loans are paid off, and you now have one new loan to pay.  Debt relief programs and debt settlement are other forms of debt management options that do not involve combining accounts into a new loan.

    What are the pros and cons of debt consolidation?

    When you consolidate your debt you acquire a new loan and, therefore, are still in debt. There is a risk in owing as much as there is a risk in lending.  If your debt consolidation loan is successful, you will have reduced the total amount of your debt.

    When is it a good idea to consolidate loans?

    You will know consolidation is a good option when you are juggling too many loans, all at different interest rates and you’re having a hard time making payments on time on all of them, or you are only able to make the minimum payment on your loans.

    How do I know debt consolidation is the best option?

    Before committing to debt consolidation inquire about other debt relief programs including debt management and debt settlement.  Acquire knowledge and information about all the options available to you and make a decision based on the amount of money you will save.

    What are the steps to debt consolidation?

    Debt consolidation is a three-step process. Put all your credit card bills together and calculate the total sum of your outstanding balance on all your loans.  Calculate the average interest rate you pay on all your loans. Compare your calculations to the debt consolidation plan to make your decision.

    How can you consolidate credit card debt on your own?

    A balance transfer credit card can help you achieve the same results as a consolidation loan and is a relatively simple process.

    What is the difference between debt consolidation and debt settlement?

    When you consolidate your loans the idea is to place all the outstanding balances on your loans at different interest rates together under one interest rate that should be lower than the average of all your loans’ interest rate. Debt settlement, on the other hand, is the process of paying off debt to a creditor after mutually agreeing to a sum less than what is owed.

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