Sometimes the stress that is associated with debt can be overwhelming. Many people think about filing for bankruptcy; however this is not the best choice. Debt consolidation can be a huge weight off of one’s shoulders. Debt Counseling can help one to understand how to fix their current debt as well as where to not get into debt again. No matter which debt option you might choose there are good things and bad things, but most important is to know the difference.
Debt consolidation allows you to take all your unsecured debts into one single monthly payment. However this does mean that you will have an even larger loan that will need to be paid off. This option can allow you to obtain lower interest rates. This is a great option for those that still have good credit but are finding themselves in too much debt or having a hard time paying their debts on time. You can either use debt consolidation with a company or on your own through a secured loan.
There are different ways to gain a debt consolidation loan options that you can choose; such as refinancing a mortgage, home equity loan, or a cash-out refinancing.
Positive Effects of Debt Consolidation
- Debt consolidation is often a desired option because not only can you reduce your interest rate through a lower interest loan, but you will eliminate all the other interest you will be paying into only one payment.
- Debt consolidation settlements are normally longer in length, this can insure that your monthly payments stay lower compared to the total amount of loans.
- With debt consolidation you will see many if not all your fees will disappear, this includes over limit fees, late fees, as well as all your penalties.
- An individual has the ability to avoid lawsuits, garnishment of wages, liens on your property or many other negative effects by using a debt consolidation plan.
Negative Effect of Debt Consolidation
- The creditors might mark your accounts as “settled” which can leave negative effects to your credit score.
- Taxes can pose a problem when one has large amounts of debt negotiated away. The taxes are still owed on this amount of the credit that has been removed.
- Debt consolidation programs can have fees that one might not expect. There could be an origination, closing, balance transfers, annual, cancelation, as well as late fees accessed to each debt consolidation. Know your fees and what is required of you.
Debt counseling is different because this is a service that can help you to manage your finances as well as learn how to control your spending habits.
- Debt counseling promotes the debt management plans as tools to help an individual get out of debt. These plans can help your total debt to be reduced because a debt counselor can help to negotiate with your creditors.
- Debt counseling also reduces your number of payments to one. You make this one payment to the debt counseling company and they will disperse the funds among your creditors. This option can help to simplify transactions and you will have no need to borrow money and add another debt to your list.
- A counselor will be able to help you identify those strengths and weaknesses that you have in regards to your financial situation. A debt counseling service is designed to help you create a plan that you have the ability to manage with your current budget.
- Remember that even though you are talking to a debt counselor your delinquent accounts can be collected on. The debts can still be sent to a debt collection company and you can receive collection calls.
Learn all You Can
It is important to learn as much as you can regards to the debt consolidation or debt counseling programs. Remember to ask questions so that you can know how the company runs. Search for reputable companies that can help you with each decision you make. Research all that you can about the programs and firms that you are becoming committed to. Know their customer service rates; ensure they have your best interest in mind. Be sure that the debt consolidation and debt counseling programs are not trying to scam you and hurt your credit rates more than help them.
One thing to remember with either of these forms a debt management you should never try to open more credit accounts. In many cases you will not even be able to use the credit cards that you already have while in these programs. Debt consolidation and debt counseling are two totally different ways of handling debt. Make sure that no matter what you choose it is the best option for your needs.