Are you having a problem with debt? I saw one report
recently that 30 million Americans have debts subject to collection. This means
that 30 million people are so behind in payments on their debts that they may
be turned over to debt collectors. People who fall into this category have
options for dealing with those debts and one of the most popular is credit-debt
consolidation.
What’s meant by credit consolidation?
When most people use the phrase, credit consolidation, what
they usually mean is credit-debt consolidation or more simply just debt
consolidation. This is defined by the online encyclopedia, Wikipedia, as “taking
out one loan to pay off many others. This is often done to secure a
lower interest rate, secure a fixed interest rate or for the
convenience of servicing only one loan.”
Too narrow
This might be a good definition for one type of credit-debt
consolidation but is far too narrow as there are a number of different ways to
consolidate debts. In fact, people who search Google on the term credit
consolidation will get more than 45 pages of results – or links to pages that
are associated with the term “credit consolidation.” These pages range from
“credit card debt solutions” to “debt consolidation help” and from “non-profit
credit counseling” to a “debt consolidation calculator.”
The four ways to consolidate debts
People who are interested in consolidating their debts have
a number of options. The four most popular are probably first, get a loan from
a financial institution (as Wikipedia defines debt consolidation). Second, would
be to obtain the help of a consumer credit counseling agency. Third are credit
card balance transfers. And fourth, would be to use one of the many credit consolidation
companies available.
The types of companies
There are three types of credit consolidation companies. The first is those companies that consolidate
debts by arranging for loans to pay them off. Its clients then pay back the
loan over some number of months.
The second is credit counseling, which is designed to help
people restructure their finances and develop debt management plans (DMPs). These
plans can usually help a person become debt free in about five years.
The third way to consolidate debt, which has grown in
popularity over the past few years, is called debt settlement.
How debt settlement
is used to consolidates debts
Debt settlement requires that a person or company negotiates
with creditors to get his or her debts reduced and then settled. Debt
consolidation occurs when the person or family hires a debt settlement company
to negotiate with all of that person's creditors. Once all creditors accept the
settlement offers, the company’s client will no longer be required to pay them.
Instead, he or she will send the debt settlement company one payment a month
until the settlement plan has been completed.
Why most people
choose debt settlement companies
People choose debt settlement companies for several reasons.
First, it’s a way to get debts consolidated without having to borrow more
money. Second and probably more important, it's the only way to get debts reduced
versus the other options that simply move the debts from one set of creditors
to another.
Not for everyone
While debt settlement can be a good option for many people,
it's not for everyone. As a rule, people need to be more than $10,000 in debt
and at least six months behind in their payments for debt settlement to be a viable option. It’s also important to understand that debt
settlement will have an adverse affect on a person's credit score though not as
serious a one as declaring bankruptcy would.
About Author:
Ana Sola has been writing on finance and related topics for over a couple of
years now. Her articles are a good source of information for the readers. She
also possesses a great deal of knowledge on the ways how
to consolidate debt. Follow her posts for more details on such
topics.
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