Debt Consolidation Services
A lot of people struggling with credit card debts are looking for relief and may have considered using professional debt consolidation services. If you are in need of debt relief, you can breathe easier because many, including those who live in Indiana, are also faced with their own debt crisis and looking for relief. The good news is, there are a variety of debt relief options available - including debt consolidation, debt settlement, or even bankruptcy, that can help reduce debts, even unsecured debts (like medical bills or department store charges).
Debt consolidation typically involves combining, or "consolidating," your high-interest credit card debts into a single, more manageable, and more affordable monthly payment made to a credit counseling agency. On the other hand, debt settlement is a process where you hope to settle or negotiate with creditors for substantially less than your actual debt amount. Both of these options are popular alternatives to bankruptcy - which has a more damaging and longer lasting effect on personal credit.
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What is Debt Consolidation?
The term "debt consolidation" (or a debt management plan or DMP) has come to represent different types of debt relief options available. However, what debt consolidation typically involves is "consolidating," or combining, your multiple high-interest credit card debts into one, more structured, and more affordable monthly payment made to a credit counseling agency. This agency typically provides debt consolidation services that include disbursing those funds to creditors.
When you enroll in a debt management plan, a credit counselor will assess your financial situation, your debts, and your overall ability to pay those debts. After the credit counselor has a clear picture of your finances, he or she will typically develop a strategy that can help you reduce your debt amount, and submit proposals to your creditors asking for reduced interest rates, or the waiving of late fees and other penalties. Creditors that agree to the proposals generally become part of the debt management plan.
With debt consolidation, the goal is to provide a single, more affordable, and more structured repayment plan for you. Many reputable debt consolidation services or companies can typically provide you with a "realistic" due date (or the time funds are drawn out of your account), and take into consideration, for instance, the day of the month that you get paid.
The objective of debt relief with debt consolidation is to help you direct more of your payment into paying off the principal of your debts versus just the interest, and help reduce your debts sooner than if you continued to make the monthly minimum payment on your credit card bills at higher interest rates.
How Debt Settlement Works
For many consumers struggling with credit card debts, debt settlement is also a popular debt relief option. If you are considering this option, it is wise to understand how it is fundamentally different from debt consolidation through a credit counseling agency. Unlike debt consolidation where consumers pay the entire amount of their debts at, hopefully, lower interest rates - in debt settlement, consumers are hoping to settle or negotiate for LESS than what they actually owe.
However, like other debt relief options, there are potential risks with debt settlement. Consumers who enroll in debt settlement programs are typically advised to stop payments on their credit card bills to accumulate funds over a certain period of time and use those funds to make a reasonable settlement offer.
In many cases, creditors will threaten consumers who default on the terms of their credit card agreement. In addition, consumers who default on the terms of their credit card agreement will typically see a decline in their credit scores.
But in spite of the risks, debt settlement remains a popular alternative to bankruptcy, which, for many consumers, is the option of last resort. In addition, bankruptcy can have a more negative and longer lasting impact to personal credit.
The bottom line is, when exploring your debt relief options such as debt consolidation services, debt settlement or even bankruptcy, make sure you understand the money you can potentially save, how long it will likely take to realize those savings, and the potential impact to your credit rating.
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