A debt consolidation program is designed to help borrowers pay off their outstanding balances with one affordable monthly payment. While your existing debt remains with the original lenders, you receive the support needed to develop a loan repayment strategy for your best chance of success.
A credit-counseling agency or debt consolidation company usually manages these programs, including the repayment of your loans. Most contain a counseling aspect to help you remain on track to becoming debt-free. Some companies may even actively negotiate with each creditor on your behalf to lower the amount you owe.
Using this method, you can typically pay off your creditors in 3-5 years. The end goal is to help you become financially independent so that you can take back your life.
Although somewhat similar, a debt consolidation loan caters to the more financially independent borrower. It combines your debts into a new single loan, usually at a lower interest rate. There is no sort of counseling during the debt consolidation loan process, and paying down your existing balances is your responsibility.
Debt consolidation programs typically start with a screening from a debt counselor to determine whether you are a good fit. If you qualify and choose to enroll, the consolidation company will take over the repayment process of all your outstanding debts.
Although your credit card and other accounts will still exist, you will make a single monthly payment to the debt consolidation company instead. They will then apply the money toward your balances on your behalf. Many companies charge some sort of fee for their services, so it is important to factor that into your repayment strategy.
If you can only cover the minimum on your credit cards, finance charges and interest rates can add years to your timeline. You need to reduce these high- interest rates so that you can tackle the principal amount. This could be the right time to enter a debt consolidation program.
Having many debts with different creditors entails juggling payments with varying interest rates and due dates. By consolidating them, you will only need to focus on a single monthly payment that is usually lower – although it will be for a longer period. If you want to opt for this program, you need the income to cover the new monthly payment amount.
For Some, A Debt Settlement Program Is A Better Option
If you are truly struggling with debt and can barely keep up with the minimum payments, you might not qualify for debt consolidation. Another option is a debt settlement program. This form of debt relief aims to have a percentage of your debts forgiven through negotiation by experts on your behalf. You then pay the rest of what you owe in a lump sum before the creditor closes the debt for good. Unlike debt consolidation, you deposit one low monthly payment into a dedicated bank account until there are enough funds for the company to begin negotiations.
Ultimately, you will only become financially independent if you learn how to manage your money. This requires a budget so that you know how much you can afford to spend every month. A credit counselor or a debt professional should be able to provide the tips and advice you need to understand the dos and don’ts of proper spending moving forward.
A better question might be if you should use your credit cards. Whether you can charge purchases after debt consolidation depends upon the repayment option you choose. If you opt to participate in a debt settlement program, you will likely close all your credit card accounts and thus be unable to continue using them.
On the other hand, you will retain control of your credit cards if you obtain a debt consolidation loan. However, since the purpose of the loan is to pay off those balances and become debt-free, continuing to spend with them could be counterproductive.
If you’re considering a debt consolidation program, you might want to speak with a trusted financial advisor first. They may be able to point you in the direction of a nearby reputable debt consolidation program or a credit counselor that can help you solve your financial challenges.
Another option is working with a debt settlement company like National Debt Relief. Instead of trying to figure everything out yourself, they will actively negotiate with creditors on your behalf to lower your balances. Be sure to review your finances before deciding which program is right for you.
If you are convinced that a debt consolidation program is your best option, select an established name to work on your behalf. Working with a company that has a current working relationship with creditors and collection agencies will help you get better results.
Look into their success stories to see what they are capable of accomplishing. But try not to get your hopes up depending on those results alone. Each situation is unique and what works for one person might not be the best strategy for you.
Stay away from companies that charge upfront fees, it is unethical and illegal. The government prohibits this under the debt relief laws – specifically the TSR or Telemarketing Sales Rule. You need to be very careful in choosing the right company or you might end up having to pay far more than you owe. Know your rights and what to expect before choosing who to work with.
If you wish to speak with a debt professional, contact National Debt Relief. We always work within the guidelines and put your best interest first. At the very least, we can advise you on the ideal path to take depending on your financial capabilities.
After you give us a call or fill out the short form on this page, we will have someone get in touch with you. The initial consultation is free, and we will never ask for upfront fees. We also don’t get paid until you agree to a negotiated amount and the account is settled.
Something really exciting happens after people have their first phone call with us.
They start to feel the power of taking back control of their personal and professional life.
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