Before going for debt consolidation, you must carefully weigh all pros and cons, as well as dangers and advantages of the decision. Our company isn’t luring you into a risky enterprise offering you to take another loan to get deeper in debt. First of all, we are here to inform you of what options are there, so that you’d be well prepared and informed before taking any actions.
So, let’s dwell to the statistics first. With the consumer debt of over $1 trillion in the USA, debt consolidation is topping the records of the fastest growing industries, but still largely unregulated.
Consider the advantages of debt consolidation.
- Rate reduction
- Individual debt repayment plan
- One payment per month instead of numerous payments
- No more late fees
- Become debt free in 4-6 years
- No more collection calls and harassment
- Better credit score
- Debt counseling service is free
There are different methods of debt consolidation. Let us focus on the major methods of debt consolidation. First is debt negotiation, also known as debt settlement. Second is debt consolidation itself. You will find many varying tactics, techniques and ways within these two methods. If you can afford the time to investigate and necessary skill, you can manage both debt settlement and debt consolidation all by yourself. Or you could find a debt help professional to negotiate and act on your behalf.
A debt consolidation loan is taken in order to pay off other high interest debts. It has a vast variety of payment schedules and maturity dates. As a result, you have a single payment timetable, the one specifically designed to fit your income stream better. You will be paying a lower interest rate on the debt consolidation loan, and you get positive credit scores. You will have to determine the best affordable monthly payment with your financial adviser. You can take the debt consolidation loan from a bank, credit union, whole life insurance policy, a 401K, friends or family, the choice is up to you. Make sure you understand the ramifications of each of these loan sources for you. The loan can also be unsecured, or a home equity loan. Be careful with that. Home equity loans normally have a low interest rate, due to the fact that if you default your house can be sold to pay off your debt. You can easily put your home at risk.
Whatever methods you use, make sure you browse around and ask for more information before making the decision. But don’t take too long, for the longer you wait and let your debts pile up – the worse things get.
Other ways to get out of debt.
Going for a debt consolidation is undoubtedly smart decision and will eventually add you positive credit score. However, you should know there are other alternatives and some you can handle on your own, without any professional assistance. Here is a brief outline of things you can do.
You don’t need a professional financial adviser to work out a self repayment plan. You can create a step-by-step plan to get out of debt on your own. All you need to do is to thoroughly assess your financial situation and work out a repayment plan according to your income.
Debt management programs.
It’s a debt assistance program, where a debt assistant or a debt counseling company works out a strategy for you. You deposit the money with the agency, which in turn uses this deposit to pay off your debt on negotiated conditions, which normally comprise lower interest rates. Being enrolled in a Debt Management Plan (DMP) almost always guarantees you get a rate reduction negotiated. The other good thing is that the time period of the pay off is reduced, too.
If you have debt on credit cards, medical bills, and student loans, they can be paid off through the bill consolidation program. Other debts consolidated by the program are utility bill payments, store cards, personal loans etc. Secured debts such as mortgage or car loan cannot be included in the program. The bill consolidation program also helps to reduce or eliminate late payment charges through negotiation with creditors.
Filing a bankruptcy is another way to write off your debts. You can file for bankruptcy according to the Chapter 7 or Chapter 13 as a consumer, depending on which type suits your situation best and the one you actually qualify for. Nevertheless, the one thing you should know about bankruptcy is that it doesn’t help you waive off all your debts and it completely ruins your credit history.
What you should know about debt consolidation is the probable consequences of a wrong decision. Here is a brief outline of the dangers you must be aware of.
If you take out a loan (especially the home equity loan), it opens up lines of credit that have been closed. The danger is, now that they’re open you may resume poor spending habits and find yourself even deeper in debt. This happens a lot due to the general misconception, i.e. if you are enrolled in a debt management plan you handle your debts better. Which is only partially true, and doesn’t imply you can afford to spend thoughtlessly in the manner, which lead you to the state where you owe to dozens of creditors. The right decision here is to face the problem and start spending wisely, try to live on LESS than you earn, save some money for emergency needs, college fees for growing kids, etc. instead of spending a lot and going into debt.
Another thing is that many debt consolidation companies are businesses that specialize in granting loans to pay off your debts. Often such companies offer loans at high interest rates with hefty late fees. These terms can be hard to find in the fine print, even harder to assess and understand. So, when you are offered a loan – be careful to read and understand all the financial terms and conditions of the deal. Some companies may pretend to be non-profit and offer you loans when it actually isn’t the best way out of debt for you. Watch out if you feel you are getting another service but then are offered another.
Reputable credit counseling agencies will offer you to restructure your debt instead of a consolidation loan.
Again, you have to be committed to paying off your debt, because if you seek a debt consolidation loan only to free up your lines of credit, you risk to find yourself even deeper in debt and with no credit at all.
How to choose the right debt consolidation agency?
Shop around carefully and make sure that the agency is accredited by a third party, and is a non-profit entity (501©3). It doesn’t request large monthly fees, counseling sessions are comprehensive and include a full budget review. The agency is either a member of NFCC or ensures it meets the standards. Those standards are: NFCC members are required to maintain nonprofit status, offer counseling services regardless of the consumer's ability to pay and offer consumer financial-literacy programs on money management, budgeting and the responsible use of credit and other financial tools. Debt management plans cost around $50 to set up, and average $25 a month afterwards.