Living a life in debt seems to be an inescapable fate for millions of people across the country. A large percentage of all households have at least one source of debt.
If you are suffering from two or more sources of debt, then there are some steps you can take to make your payments easier on your wallet. In particular, if you have multiple credit cards open with outstanding balances then there are ways you can possibly reduce the balances and reduce the required monthly payments.
Following are some very common questions about debt consolidation and debt settlement. After each question will be a short answer, an in-depth answer, and some additional helpful information. Hopefully, you can use this information to weigh consolidating credit card debt and debt settlement, and then make an informed decision on your own. These options may not be perfect for you, but they could also be exactly what you need.
Q: Can Credit Card Consolidation Cut My Debt By 80 Percent?
Short Answer: Probably not.
This question arises frequently because of the many commercials that people see on the television advertising debt companies. These companies tend to make very, very large claims. In some cases, these claims are not true.
That doesn’t mean that all debt relief or debt consolidation companies are dishonest. It also doesn’t mean that you can’t have your overall debt cut by some small percentage. Debt relief or debt settlement companies do have the power to negotiate with creditors to reduce balances, so it’s important to understand the distinction. Consolidation is more about reducing monthly payments and simplifying – in many cases, people with less serious amounts of debt go for consolidation options, while those with very large amounts of debt opt into debt relief.
The important part is that you enter into this arrangement with real expectations. No, you won’t be saving 80 percent on your overall debt. But it is possible to save some small percentage. It is also possible to have your monthly payments significantly reduced with both options.
Q: What Is Debt Settlement?
Short Answer: A way to reduce your overall debts.
Debt settlement can occur one of two different ways. The first way is that you attempt to make the settlements yourself. This is by far the more difficult method. The second way is that you work with a debt relief company that offers debt settlement services. Visit National Debt Relief to get more information on the subject from a company that offers the service.
Debt settlement involves negotiations with the lenders, debt collectors, or creditors who are seeking payment. In some cases, it is possible that these people will take a single lump sum payment to settle the debt. Furthermore, they may accept a lump sum payment that is of less value than the overall balance. After all, they would rather settle and get some money than have you enter bankruptcy because they get nothing out of it.
Settling your debts yourself can be pretty difficult. The lenders will want to see documentation showing that you could potentially enter bankruptcy. If they believe you have the potential to repay the debts, then they won’t budge.
On the other hand, debt settlement companies don’t rely on such tactics. They have proven successful methods of negotiating with creditors that have helped thousands of clients resolve their debts and move on with their lives.
Q: Am I Better Off Just Paying My Debts Normally?
Short Answer: Maybe.
Consolidating credit card debt does not come without risk. And no matter how you cut it, at the end of the day, you still have to pay off those debts. If it’s possible for you to just pay your debts as they are, then that may be the better option. However, there are many people who have so much debt that it’s not an option for them.
This is where consolidation and settlement can help. These programs are for people who are really struggling under the heavy burden of monthly payments and need some sort of help. But, like we said, there are drawbacks.
One of the risks of debt consolidation is that it usually extends the term of your payments by months or years. This is how they manage to reduce your required monthly payments. The end result is that you actually stay in debt for longer while making the smallest possible payments to escape debt. By paying as much of your debts as possible prior to consolidation, you reduce the extended span of time required for the consolidated loan term.
Q: What Are Some Techniques For Repaying Debt?
Short Answer: Debt Stacking And The Snowball Method.
Two common methods for tackling multiple sources of credit card debt are the debt stacking method and the snowball method. In a sense, these two methods are similar, yet the exact opposite. One involves working down the list of debts from high-to-low balance and the other requires working up the list from low-to-high balance. Each has its benefits.
With the debt stack method, you have the comfort of removing the biggest debt first. This is actually the most common method used and the one that most financial experts will recommend. The snowball method seems slightly easier, but in the long run, you save more money by debt stacking. Most of that money saved is in the form of interest.
Paying off a high-interest, high-balance credit card can seem very overwhelming. However, it’s not an impossible task. If you continue to persevere and chip away at the balance little-by-little, you will eventually eliminate that source of debt entirely. If you feel like it is just too much, then you should consider the snowball method.
The snowball method works in the exact opposite fashion. Instead of starting with the largest balance, you focus on paying off the smallest balance first. The benefit of this method is that once you have paid that small balance, you will have more monthly funds to put toward the next balance. In this way, the money you are paying towards the debt snowballs and grows larger. Each time you repay a debt entirely you have more money to put towards the next debt.
Q: Is Consolidation Just Another Loan? Another Debt?
Short Answer: Sometimes.
Consolidating your credit card balances usually requires an additional loan. This loan is used to pay off all of the existing debts. You then focus entirely on repaying this single loan instead of repaying multiple balances. For many people, paying one loan with one term and one interest rate is much easier to manage.
It also means you can negotiate better terms and interest rates based on your credit score and available equity.
There is another form of consolidation which does not require an additional loan. For details on this contact National Debt Relief.
Q: What Are The Loan Options Available For Consolidation?
Short Answer: Personal Loan, Home Equity Loan, HELOC.
The primary options are a personal loan and a home equity loan. In some cases, you may be able to secure a home equity line of credit (HELOC). For the sake of simplicity, we will group a HELOC in the same category as a home equity loan. These are your two main options and there are some very big differences.
The first and most obvious difference is that a home equity loan requires ownership of a home. It may be possible to secure a similar type of loan if you have some other form of equity.
If you do own your home and you don’t mind using it to secure a loan, then this will be the best option. It results in much lower payments and lower interest rates. The risk is obviously much higher with this type of loan. If you are unable to repay this loan in full, then you could lose ownership of your home or whatever equity you used to secure the loan.
The benefits are rather impressive, though. The interest rate on a home equity loan can be as low as 4 percent in some cases. This is also one area where a HELOC and home equity loan differ. The interest rate on a HELOC can be as low as 2 percent.
A personal loan is not secured. That means the lender is taking the risk, unlike a home equity loan, where the risk is entirely on you. It is because of this increased risk that the interest rate is increased. In most cases, this interest rate is still lower than the interest rate on multiple credit card bills. If your credit score isn’t too bad, then you could get an interest rate closer to 6 percent in some cases.
The option that is best for you will probably depend on your available equity. If you honestly believe you can repay these debts, then using your home as equity is a great solution. If you don’t believe you can repay them, then you shouldn’t be seeking a consolidation loan at all.
Q: How Do I Choose The Best Company?
Short Answer: Use Online Rating Systems.
There are dozens of debt settlement, relief, and consolidation companies around. But, as mentioned, some of these companies can be somewhat dishonest. They make false promises and charge very big fees upfront. You can avoid companies like those by using online rating and review systems.
Visit TopTenReviews.com to see a list of the top ten debt relief companies.
The company that comes closest to finding the right balance is National Debt Relief. That’s why they are rated the number one debt relief company in the country. They have already helped thousands of people escape the fear of drowning in debt.
One category they’re graded on is eligibility and application. This refers to how easy it is for a person to qualify for assistance from this company. Many debt relief companies require very large minimum debts before they are willing to help. National Debt Relief only requires a minimum debt of $7,500. This includes business debts as well as personal debts. So it’s very easy to qualify for assistance from this company if you meet that threshold.
Work Hard Towards Paying Those Debts.
Even after you’ve signed up with one of these companies, the journey isn’t over yet. It’s important to stick to your program and be patient. Results can take a while, but based on the many customer reviews found on sites like TrustPilot, the end result is well worth the effort and time.