Debt Consolidation and Credit Counseling

December 23rd, 2009 | Posted in Debt Consolidation, Debt Relief

No matter what your occupation, your status in life, or what your belief system is – in our money-driven society almost all of us are familiar with debt. There are bills to be paid, groceries to be bought, taxes that go to the government, and a plethora of other obligations that must be met each month. It doesn’t matter what your walk in life is, debt is simply a reality in today’s world.  Where the problem comes is when that debt becomes too much.

For any one of us, a number of situations may make our debts become a problem. When that happens though, it’s important to know that you aren’t necessarily stuck. Bankruptcy isn’t the only option. Understanding that, knowing that you can turn to debt consolidation and credit counseling can relieve a large part of the burden when debt is a problem.

To take it further though, it’s important to understand the differences between debt consolidation and credit counseling, and to be able to choose the solution that’s right for you.

Debt Consolidation and Credit Counseling – What’s the Difference?

There are obvious differences between debt consolidation and credit counseling. Consolidation entails taking out a loan, while credit counseling involves working with a debt counselor to negotiate down the amount of money you owe. There are also less obvious, and often misunderstood, differences between the two.

1. Differences in length of time to complete – One of the biggest differences is the length of time to complete the program. A consolidation loan usually averages 5 – 8 years before it’s paid off. On the other hand credit counseling, often referred to as debt settlement, is usually completed in 2 – 3 years.
2. Differences in the way your credit is affected – One of the most misunderstood differences between debt consolidation and credit counseling is the way in which your credit rating is affected. People seem to think that because consolidation is a loan that it affects their credit in a positive way. This isn’t true at all.

A consolidation loan is a black mark on your credit rating. Most lenders look at your current credit, see that you overextended yourself, and will refuse to extend further credit. This black mark lasts for the length of time the consolidation loan is on your credit rating, and five years after. Since a debt consolidation program can last as long as 8 years, that’s 13 years that the loan may affect your ability to gain credit.

Since a debt settlement program is over faster, the negative effect to your credit rating doesn’t last as long. If you finish your debt settlement in 2 years, then at that point you can begin working to rebuild your credit and overcome any negative effects the counseling program may have had.

These differences are important to consider as you choose the debt relief program that is right for you.

Debt Consolidation and Credit Counseling – Which one’s Right for Me?

With a clear understanding of the differences between debt consolidation and credit counseling choosing a solution isn’t really that difficult. The only other thing you really need to consider is the amount of debt you have.

If your debts are still a manageable amount, and are under $10,000, then a consolidation loan may be the best solution. The important thing here is that you are able to pay the loan off in a 2 – 3 year period. This obviously becomes less likely as you begin dealing with larger amounts of debt (most of us couldn’t pay off a $100,000 loan in 3 years).

For those with a larger amount of debt, a credit counseling program is likely the best solution. By working with a counselor and having the balances of the debts themselves reduced – your debts become more manageable and you’ll be able to complete the program in a shorter amount of time.

If you’re currently suffering because of huge debts, you may want to check out our debt relief review page. We cover the top 3 debt relief companies in the US according to our research and consumer feedback.

Settle Debt Credit Card – 3 Steps to Settle Credit Card Debt

November 15th, 2009 | Posted in Bankruptcy, Credit Card Debt, Debt Consolidation, Debt Reduction, Debt Relief, Unsecured Debt

When it comes time to settle credit card debts, many people don’t know where to start. The reality is that there are a number of questions that need to be answered. First, you need to know if debt settlement is even the right option. Next you need to consider whether you’ll settle your credit card debts by negotiating yourself, or to seek a debt settlement agency. There are also other questions that may come up.

In this article we will cover the steps you need to take to determine whether debt settlement is right for you, and then move along with your plan to settle the credit card debts you currently carry. It may feel like the burden of debt is too much and you’re constantly running from your creditors, but there are simple ways to reduce and overcome those debts.

One thing to note before we move on: Whether you think you can negotiate your own debts or not, most of us simply aren’t good enough at it. Even though it may involve a small fee, our suggestion is that you always seek the help of a qualified debt relief company such as those featured on our home page.

Settle Debt Credit Card – Step 1 Calculate Your Debts

Your first step in working towards a credit card debt settlement is simply to calculate your debts. Find the balances of all of your unsecured debts, not just the credit card debt, and then add up all the figures.

Unsecured debt refers to anything where the creditor does not hold something as collateral. For example your American Express card is an unsecured debt. The same can be said about that personal loan from the bank (assuming you didn’t put up collateral for it).

On the other hand, a mortgage or auto loans are considered to be secured debts. If you default on your mortgage the lender can take your house, so the house itself is considered security. Â By the same token if you default on your auto payments the lender will simply take your car.

Settle Debt Credit Card – Step 2 Consider Your Options

After you know how much money that you owe, it’s time to consider your options. Assuming you’re stuck, and there’s no way you can meet your monthly payments, there are really three options to be considered:

1. Bankruptcy – This should be considered to be a last option only. Bankruptcy will follow you for the rest of your life, and even though you may think it doesn’t – it does cost money.
2. Debt Consolidation – If you have less than $10,000 in debt you might consider taking out a consolidation loan. This type of loan simply puts all of your debts into one reduced payment. For most people this is a good option if you have a smaller amount of debt (under $10K).
3. Debt Settlement – For those with more than $10,000 in unsecured debt the best option is usually to seek out a debt settlement plan. This type of plan reduces the balances owed to your creditors, but still requires a (smaller) monthly payment. This option is better than bankruptcy because it won’t affect your credit to the same degree, or for as long, and it is usually over faster than a consolidation loan so it’s a much better option for those with a larger amount of debt.

Settle Debt Credit Card – Step 3 Find Your Solution

Once you’ve decided on an option it’s time to find your solution. If you had under $10,000 in debt you may want to simply visit your bank and apply for a loan. If you determined that a settlement plan was a better alternative for you, then you should seek the services of a qualified debt settlement company. If you need help choosing, you can always find the top 3 debt relief programs on our home page.