Debt Consolidation or Bankruptcy?
If you’re struggling with debt, it can often seem like there’s no way out. Wage garnishment, debt collectors calling at any time of the night and that sinking feeling that you’ll never be free again are just a few of the things you may be dealing with when you have serious debt. However, there are options you can pursue when you’re wrestling with debt. Consolidation and bankruptcy are two options many people consider. more ...
How To Dump Deadweight Debt
There are three types of debt: 1) There is debt that has value, such as a mortgage or car loan, 2) There is debt that has little value, but it is not hurting you, such as short term credit card purchases, 3) There is debt that is actively hurting your financial position, such as long term high valued credit card purchases of expendable items. To improve your financial position you need to learn how to identify what type of debt you have and then figure out ways to dump deadweight debt. more ...
Your Guide To Debt Consolidation
Debt consolidation trades in several debt payments for one combined monthly payment, making debt much easier to manage and oftentimes lowering interest rates and monthly payments. The goal is to secure a consolidated loan with a lower interest rate, fixed rate, better terms or simply for the convenience of making only one loan payment each month. The best debt consolidation services will not only help you consolidate your debt payments, but will also educate you on how to stay out of debt in the future.
Debt consolidation is not something to be entered into lightly. There are plenty of risks that come with consolidating your debt, like unexpected additional payments or a longer payment timeline. Most debt consolidation services will require some type of collateral, usually property assets. It is crucial that you are able to make the minimum monthly payments of your consolidated debt so that you do not risk losing your property. Do your research and find the best debt consolidation company for your particular financial situation.
When should I consider debt services?
- You have over $10,000 in credit card debt or unpaid loans.
- You have high interest rates on more than one unpaid balance.
- You own a home and have a large amount of debt.
- You have multiple unpaid loans and/or credit card balances with varying interest rates and deadlines.
Debt Relief & Debt Management Services
If you are overwhelmed with debt, there are various services for debt relief and debt management. Debt consolidation is only one of many options and may not always be the best route for your situation. Here are a few other debt management services to consider:
- Debt Settlement - Debt settlement firms may be able to negotiate a lower debt balance amount with your creditors. There are often fees and conditions associated with these services that they are required by law to make known ahead of time. The Federal Trade Commission (FTC) restricts companies from charging any kind of fee before they reduce or settle your debt. Depending on your situation, any money you may save with your reduced debt balance could be considered taxable income. Settlement can be a viable option for debt relief, but you must be wary of any guarantees that the company makes to get rid of unsecured debt in its entirety or that your unsecured debt can be paid off for just pennies on the dollar.
- Do-it-Yourself Debt Management - A form of "self-help," do-it-yourself debt management can often lead to better financial decisions overall. The stand-out feature of debt management is that it does not have any effect on your credit score--since you are the one paying off your debt in full and in a responsible manner. Some debt management resources offer free tips and communities where you can interact with others who have been in the same situation. In fact, the best debt consolidation firms will also offer this type of service to help manage your debt and develop a realistic budget so that you don't run into future problems. Debt management companies help you determine your fixed and variable expenses, and then they will help you prioritize to come up with a reasonable and realistic debt payoff plan and spending goals based on your income. This is a great option to help get you back on track and avoid future debt. (Note that if you are in too deep you may require debt consolidation in addition to this service.)
- Credit Counseling - Credit counseling is ideal for those who are unable to stick to self-help practices without outside guidance and assistance. Certified and trained in consumer credit, budgeting, and debt management, credit counselors can help you develop an individual plan that caters to your specific money problems. Most offer free educational materials and workshops as well as an extensive initial counseling session followed by several follow-up sessions. Credit counseling is often viewed as the middle ground between do-it-yourself debt management and debt consolidation, though you may still want to consider counseling in addition to other means of debt relief.
- Debt Consolidation - Debt consolidation involves combining all of your creditor accounts into one monthly payment. You can reduce your monthly payment amount if the credit counselor negotiates a better interest rate from your creditors. This can be done when from the creditor's point of view it seems as though you are not very likely to pay off your debt without debt consolidation; they'd rather get paid some than nothing. Agreeing to a lower rate or payoff amount ensures the creditor they will at least recoup a significant portion of your debt. Debt consolidation also puts an end to harassing phone calls from debt collectors, which is a major relief for many consumers in debt.
What should I watch out for?
Like most financial services, the debt consolidation industry has produced many untrustworthy entities that you should be wary of at all times. One way to avoid being "had" is to check with your attorney general, local consumer protection agencies, and the Better Business Bureau to find out if any consumer complaints are on file about the business you are considering. Be sure to work only with reputable and credible debt consolidation services.
Will debt consolidation hurt my credit?
Consolidating debt or utilizing the services of a debt management company or credit counselor does not directly affect your credit score. However, it can make it difficult to get credit in the future. When you use the service of a debt consolidation or debt settlement company, it shows up on your credit report. While debt consolidation does not hurt your credit score, debt settlement does, and they can both have negative repercussions when creditors see this on your report, making them hesitant to grant you credit in the future.
Information about your debt settlement or debt consolidation plan will only remain on your credit report for as long as the payments are being made. After your account is paid in full, creditors will no longer be able to base decisions on your past and will have to rely fully on what they see at present on your credit report. While this may sound like it may not affect you, note that a consolidation plan may take years to complete. However, many debt consolidation and management firms do not allow you to apply for new credit before your debt has been paid, so it being on your credit report may not matter. In the long run, paying off your debt and staying out of future debt will help boost your credit score and can improve your chances of getting approved for future credit.
Can I use debt consolidation to avoid bankruptcy?
Filing for bankruptcy should always be a last resort. While people who file for bankruptcy may not have to repay certain debts, the effects on your credit are severe and long-lasting. The fact that you have filed for bankruptcy remains on your credit report for 10 years, which often makes it difficult to obtain credit, obtain life insurance, buy a home or even land a job.
If you are in so much financial difficulty that you cannot settle your debt on your own, seek help from debt management services, credit counselors, debt consolidation firms or debt settlement agencies before you consider filing for bankruptcy. Debt consolidation may not always be a good idea for everyone, but it is a better alternative than bankruptcy. Consider all of your options and find the best debt consolidation service to help you with your fresh financial start.