Debt Ruining Your Life

I have $40,000 in credit card debt that is ruining my life! HELP!

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Bill's Answer: Answered by Mark Cappel

There are several debt relief options for consumers in your position, but the one that will best suit your needs depends primarily on your credit history and the amount you can pay toward these debts on a monthly basis.

Very quickly, if you want a free debt consultation with one of Bill's approved debt help partners, click here: /debthelp/debt/

Since there are a variety of online debt consolidation options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, and other debt resolution options, it is important to fully understand each option and then pick the solution that is right for you.

Credit Counseling

Credit counseling, or signing up for a debt management plan, is a very common form of online debt consolidation. There are many companies offering online credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts - but with lower monthly payments. On average, most online credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report... and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy - or using a third party to re-organize your debts.

Debt Settlement

Debt settlement, also called debt negotiation, is a form of online debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of online debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.

Debt Consolidation Loan

Many people think first of a debt consolidation loan when seeking online debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt. It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high... but the monthly payment will be lower than other options and there is no credit rating impact.

If you do own your home, while you may be able to obtain a refinance loan with cash out, your low credit score will make finding a loan with a low interest rate much less likely.

But, if you want an introduction to pre-screened mortgage lenders, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at:

/mortage/refinance/

Net-net: while there are many forms of online debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the online debt consolidation option that fits for you.

Bills.com makes it easy for you to apply, by following this link: /debthelp/debt/

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Comments (2)


Bradford G.
July 05, 2007
The answer is no... no one will do a $120k unsecured consolidation loan in this marketplace. You do have options, though. Probably the most accurate, usage refers to debt consolidation loans, wherein a consumer takes a single loan, usually secured by his home or other property, to pay off several other creditors. Debt consolidation loans are designed to lower the overall interest rate on debts, and to allow the consumer to make a single monthly payment to one creditor instead of paying multiple creditors. Debt consolidation loans do not generally have a negative impact on consumers’ credit scores, as these loans do not increase in the amount of debt; they simply move it from one account to another. Also, consumers can leave open a few of their older accounts to make sure that they still have plenty of positive payment history appearing on their reports. The second most common debt relief option called “debt consolidation” is consumer credit counseling. Consumer credit counseling service (CCCS) companies attempt to negotiate lower interest rates and monthly payments for consumers. If you enrolled in a CCCS program, you would pay the CCCS firm a single monthly payment, which would be dispersed to your creditors based on a pre-determined repayment schedule. As long as the CCCS company pays your creditors on time each month, and the payment is large enough to cover the minimum payment, then a CCCS plan should not hurt your FICO score. However, some CCCS programs do not make payments timely, or make payments which are too small, resulting in delinquencies on their members’ credit reports. Also, very importantly, CCCS is reported to the credit bureaus and many lenders look at credit counseling as if you had filed for Chapter 13 Bankruptcy. So, while your FICO score will not be impacted, your credit profile is very negatively impacted. If you are interested in enrolling with a CCCS firm, you should discuss these issues in detail with the firm before making your final decision. Debt settlement programs are also frequently called “debt consolidation.” These programs, in which you save money monthly to negotiate settlements rather than making monthly payments to your creditors, definitely do have a negative impact on your credit score. In the months that you are saving money to negotiate with your creditors, your accounts will be listed as delinquent on your credit reports. However, the benefit of these programs is that they can often result in significant reductions in the balance of your debt, sometimes reducing your debt to 40% of what you previously owed. Many consumers find this benefit well worth the temporary negative impact on their credit scores.
Cathy .
July 04, 2007
Is there a company out there that does a unsecured debt consolidation loan for $120,000? Do pay present debt on time. Please forward any information thank you, Cathy V.
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