Given the climate of hardship that pervades the current economy, numerous consumers are now burdened by high-interest credit card debt. Many are searching for solutions that will relieve their predicaments and help them regain their financial footing. Debt consolidation is one of these solutions, and can be achieved through several means.
Debt consolidation is a general term and refers to the practice of consolidating/combining multiple bills and payments into a single payment. This can be done through debt relief programs, such as debt management and debt settlement, or through taking out a loan to pay off individual debts and then paying back the loan.
Photo by Anthrocopy.Here is a quick breakdown of 4 ways you can accomplish debt consolidation:
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Debt Consolidation through Refinance or HELOC
Refinancing was once a viable debt consolidation option for many homeowners, especially when home values were high and loans were easy to come by. But with the steep decline in home values and the rigid lending requirements in the marketplace, refinancing is an option that very few can take advantage of now. Even those who do have home equity lines available to refinance their debt are urged to consider the consequences of doing so very carefully. Converting unsecured debt into secured debt can ultimately put your home at risk, not just your credit.
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Personal Loans
Personal loan financing is usually made for smaller amounts and are often unsecured. Since no collateral/security is required to obtain this type of financing, there is an increased risk to the lender. Because of this, lenders have made getting this type of unsecured loan extremely difficult or are often financing them at higher interest rates. In the current risk-averse lending environment, consumers will likely find it difficult to consolidate their debt through a loan of this type.
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Debt Settlement
Debt settlement programs can reduce the amount of debt owed, significantly reduce monthly payments, eliminate interest charges and fees and get the consumer debt-free in a fraction of the time. The adversarial nature of debt settlement programs, however, can present the consumer with complications that result in historically high drop-out rates. For example, until the account is settled, creditors will call and harass the consumer, report the debt as past due, and even go as far as pursuing the balance in court. Also, credit damage is a certainty in a debt settlement program, although it is usually less severe than that experienced from bankruptcy. Consumers who think that bankruptcy is their only option should investigate the possibility of debt settlement as well.
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Debt Consolidation through a DMP
Credit counseling agencies and other debt relief providers offer a Debt Management Plan (DMP), which entitles consumers to benefits that extend beyond the financial counseling. Debt management will give consumers the benefits of reduced interest rates, one consolidated monthly payment, relief from debt collection phone calls, stopping over-limit and late fees, financial counseling, and protection of their credit score all while becoming debt-free. The debt can be paid off completely in just 5 years or less, which is a fraction of the time they may otherwise face at their current interest rates.
Need help determining which debt consolidation option to choose? You can fill out the online form on the right and a debt advisor will get in touch with you to answer all your questions.
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17 February 2011 at 1:46 pm
Hmm good read, going off the last point you made, do u really think that people can controll there spending and not get into debt?
25 April 2011 at 4:52 pm
I really respect what you’re writing here. Keep posting that way. Take care!
6 May 2011 at 1:48 am
@Liam – Yes, absolutely. Everyone’s situation will be different and there’s no clear cut answer. So if you’re still struggling with your debt, it’s best to speak to a professional debt advisor who’ll be able to answer all of your questions.
@Donald – Thanks Donald! Stay posted!
11 June 2011 at 5:59 pm
These are some great options. Personally, I would be a little hesitant putting a lot of debt under HELOC unless I would be 100% sure I could pay it off at a later time. However, HELOC is just one of the great options you gave. I would also recommend to people to use a bankruptcy trustee to make a decision as to what route they should take. The good trustees can help you consolidate debt and at the same time reduce your debt by even 40%-50%.
5 September 2011 at 1:18 pm
Great breakdown article. The only way to for me to get rid of debt is by educating myself.
19 September 2011 at 3:40 pm
Fantastically insightful appreciate it, It looks like your visitors could possibly want further items of this nature continue the good hard work.
11 November 2011 at 4:08 pm
Your comments on paragraph 3 are farily accurate, however if the debt settlement company knows how to do their job properly, they can stop creditors from calling and harassing them. I feel it’s unfair to publish that statement, since it’s very simple to take care of, simply send the creditor or collection agency a cease and desist letter and/or inform the creditor that you are working with an attorney or debt settlement company and the calls stop.
As far as someone being taking to court, yes that’s possible too, however 90% of the time that doesn’t happen, but Citibank specifically is trigger happy on sueing their customers, so if you have a Citibank account, settle that one first to avoid court proceedings.
17 November 2011 at 1:19 am
I think being frugal is one of the most important things we can teach ourselves and our children. Second chances are hard to get when it comes to purchasing power. Debt consolidation works well if one has the ability to refrain from sliding back into the hole! Anyway, thanks for the info.