When credit card balances and amounts owed on personal loans become difficult to manage it is advisable to turn to a professional agency that can assist in making the best decisions. Reducing credit card debt is difficult when spending limits are reached because of the high interest rates charged. One solution is to combine the existing balances into a single loan. Another option is to negotiate a debt settlement that requires the consumer to pay off less than what they originally owed. These strategies are generally not used simultaneously.
Debt Consolidation Facts
Debt consolidation companies that take over large debt amounts will pay off the creditor(s) and then offer a new loan that equals the amount of the previous ones. This new loan is usually secured with collateral in the form of real estate or other property, and the interest rate assigned is often quite attractive when compared the APR of the credit card accounts. In this situation the principal is not reduced; the consumer must still pay the full amount owed but the total of all payments is far less than the individual credit card principals and interest. If a consumer has $10,000 in credit card debt and makes minimum payments the amount paid over the next ten to fifteen years could exceed $30,000. A combined payment may save thousands of dollars and is paid off more quickly.
Negotiating A Settlement
This solution involves having the individual credit card or finance companies terminating the active account and settle for a total payment amount that is a percentage of the existing balance. Often there are no additional finance charges but the settlement is reported to the credit bureaus and this has a negative affect on a credit rating. Also the agency that negotiates this settlement will charge a large fee for their services. The amount paid per month may or may not be reduced but the time it takes to pay off the debt will be shorter than before.
These Programs Are Separate
If a creditor has agreed to a debt settlement arrangement, the consumer will still have the original account. It will not be active but the contract is still between the creditor and the person holding the account, therefore no consolidation is possible. In some circumstances a debt relief counseling service such as LowerMyBills or NationalRelief may be able to offer a package that includes some but not all of the credit card accounts, and the remainder can be negotiated with the charge card company.
Compare The Cost Of Both Programs
Professional credit advisors can look at an individual portfolio, determine whether a reorganization of debt payments is worthwhile and offer consumers a specified loan amount and interest rate. It is important to compare several of these offers as well as consider debt settlement, because every case involves a different set of short and long term consequences.
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