- 3 min read
- There are different types of credit consolidation services.
- Match your financial situation with the most appropriate debt consolidation program.
- Use Bills.com Debt Navigator to help find a credit consolidation servcie.
Evaluate Your Options For Credit Consolidation Services
We aim to pay off our debts each month, but too many of us do not succeed. According to the Federal Reserve, as of mid-2018 Americans carry more about $830 billion in credit card debt, About 8% of credit card debt, $64 billion, is 90 or more days delinquent as of June 30, 2018.
Anyone with debt wants to find ways to save money and create an affordable monthly payment. One common way to deal with debt is through debt consolidation. Although one of the most common programs is a debt consolidation loan, there are other credit consolidation solutions.
Credit consolidation services combine several debts into one payment and set up a payment schedule for you. Typically, credit consolidation services include credit counseling and debt settlement. Both are alternatives to high-cost consolidation loans or bankruptcy.
What Kind of Credit Consolidation Service Should I Use?
Before you decide if a credit consolidation service can help you improve your financial situation, ask yourself these five questions:
- Do I want to protect my credit score, or do I want to get out of debt quickly regardless of the credit score damage caused?
- Do I own a home with sufficient equity to take out a home equity loan?
- Can I afford to pay about 3% of my total debt each month to a consolidation payment?
- Do I have any assets that can be used to reduce my debt?
- Am I in such distress that I can’t afford any payment to reduce my debt?
The answer to those questions will help you decide what kind of debt consolidation program can best serve your interests and increase your financial health.
Finding an Appropriate Credit Consolidation Service
Here is a brief explanation of the major credit consolidation services and how they fit into your overall financial situation.
Debt Consolidation Loan:
If you have good credit and can afford relatively high monthly payments, then start with by looking at a debt consolidation loan. A debt consolidation loan allows you to pay off high-interest debt at a lower interest rate at a more rapid pace.
Cash-Out Refinance or Home Equity Loan
If you own a home with at least 15-25% equity and have good credit, then you may want to consider a cash-out refinance or home equity mortgage. A mortgage will allow you to consolidate your debt with low monthly payments and a low-interest rate.
Credit Counseling and Debt Managment Plan (DMP)
If maintaining a high credit score is your goal and you can afford to pay 3% or more of your debt balance each month, then look closely at credit counseling. A Consumer Credit Counseling Services (CCCS) will help you with financial counseling and budget planning. A DMP can negotiate lower interest rates. On the average, DMP takes 5 years to complete, so you must be able to commit to a long-term repayment plan.
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If you are in financial hardship and struggling to make your monthly payments, or already delinquent on some of your payments, then consider debt settlement. This type of credit consolidation service focuses on getting out of debt. You stop making payments to your creditor and make low monthly payments to a special account. Debt settlement is most appropriate If your credit is hurt, or you are more concerned with getting out of debt than protecting your credit, Debt settlement programs usually take 3 to 4 years to complete.
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Find a Credit Consolidation Service
It is important to find a credit consolidation service that fits your financial profile. Research your options and find a reputable consolidation services company. Bills.com offers you a free tool, the Debt Navigator to help you analyze your situation and find a debt relief program that puts you on the path to debt freedom.
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2022 was $16.91 trillion. Student loan debt was $1.60 trillion and credit card debt was $0.99 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Hawaii, 11% have student loan debt. Of those holding student loan debt, 7% are in default. Auto/retail loan delinquency rate is 3%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.