Considering Debt Consolidation

Debt Problems?
People find themselves in credit debt for many reasons. The loss of a
job, unexpected bills, an extended illness or other personal emergency . . . all are common debt situations. Whatever the reason, individuals who find themselves in a difficult financial situation often need experienced, professional consolidation guidance.

What is debt consolidation?
Debt consolidation plans involve restructuring your existing debt with your existing creditors. Money is not loaned, and creditors do not change --- but the terms and conditions under which the existing debt can be repaid usually change significantly. Under most Debt Consolidation Plans the monthly payment which is expected by the creditors is typically lowered and, in most cases, interest due to the creditors is lowered --- and sometimes totally eliminated.

A person qualifying for a debt repayment program will usually find they are making more progress towards reducing their debt even though they are making lower monthly payments. Since most creditors report payments received under this plan as prompt payment, the person's credit report is usually improved by a payment plan.

What are the benefits of a good debt consolidation program?
A  good Debt Management Program combines two essential elements: the ability and the motivation to get out of debt. Under such a plan, you make one convenient monthly payment to the program administrator and it gets disbursed to your creditors. Usually this payment is lower than current minimum payments and it is always within your financial ability to pay. When they pay your creditors, it is almost always at a lower interest rate so that your payments actually go toward reducing your debt.

Will credit counseling appear on my credit report?
YES. the creditors will ALWAYS  immediately  report your actions to the credit bureaus.  Special agreements should be made prior, so the creditors will report positive payments. By reducing debt and having the creditors report the payments received as prompt payments, it is possible to actually improve your credit rating, but don’t count on it. Participants in debt payment programs cannot go further in debt. In addition, debt plan participants are paying creditors according to the creditors terms and conditions negotiated by the company you hire, not by you.
 

Should I consider filing for bankruptcy instead of joining an honest program?
Filling bankruptcy should be your last resort in solving your financial difficulties. Although it may help you now, it will hurt you in the future. If you choose to file bankruptcy, be prepared to accept the unfortunate consequences. It will appear on your credit report for at least ten years. In addition, it can be reported for the rest of your life when applying for certain types of state licenses, jobs, as well as various types of loans. Before you consider filing bankruptcy, give yourself one last chance to obtain financial freedom.

Why shouldn’t I apply for a home equity loan or debt consolidation loan to pay off my creditors?
Most people like this idea, as they receive a check to pay off all their creditors almost immediately. In addition they are told that the interest payments are deductible.

What these companies don’t tell you is as follows:
A very large majority of people who apply for these types of loans end up in deeper financial trouble than they were before. The reason this happens is because these loans do not reduce the amount you owe. In addition, you jeopardize your two most valuable assets - your house and your family. It won’t be long before your credit cards are maxed out to their limit once again. The only difference is that this time you will have two types of loans to pay off: your credit cards and the home equity loan. You will then be facing several unfortunate consequence among them the possibility of bankruptcy and foreclosure.

Who should consider a debt consolidation plan?
In general, anyone who has enough debt so they can only afford to make the minimum monthly payments on their obligations should consider a debt consolidation program. There are many other signs of potential financial trouble, but the real guidelines should be the impact it has on your life. If you are worried about your bills, you should get a professional opinion about your financial options.  If you are currently behind on some or all of your payments, there is hope for your financial situation! Some of your creditors will bring your accounts current shortly after you begin a consolidation program if you talk with them. If your account has already been charged off, is in collection, or even has a judgment filed against it, some plans can help with these.

What kinds of debt qualify for debt consolidation?
Many debts can be included in a debt consolidation program. Generally, most unsecured debt can be included. For example, credit cards, medical bills, department store cards, student loans, taxes and bank lines of credit are examples of debt that are frequently consolidated. Secured loans such as house payments or car loans usually cannot be successfully consolidated. Also, any loan that has been cosigned by another person will require that the other person pay on the loan if you do not meet the original terms and conditions. Secured debt is debt that is secured by something tangible. In other words, if payments aren't made, the security (a car or a house, for example) can be taken away. In general, secured debt should be paid before unsecured debt.