Find the Best Debt Consolidation Programs
Ideally, everyone could solve their problems on their own. Basic financial advice, like that given by Dave Ramsey or Suze Orman, advocates taking control of your spending and paying your bills more effectively. While sound advice, that simply won't solve everyone's debt problems. There is no one-size-fits all debt solution.
If your debt has grown to the point that you can't manage it on your own, you should look into the services of professional debt consolidation programs. You need to focus on how to find the best debt consolidation program to help you.
What kind of solution is best for you depends on:
- How serious your debt problem has become
- What you can afford to spend each month
- What assets you own
- How important your credit rating is to you
Credit counseling is a debt consolidation program that focuses on lowering your interest rates. If your primary issue with your debt is your interest rates and if your specific creditors are willing to lower their rates in the program, you can reduce the time it takes to resolve your debts.
Credit Counseling Good Points
- Reduce your interest rates, so you get out of debt faster. The average credit counseling program takes about five years to complete, far shorter than what it takes if you make only your minimum payments.
- Reduce your monthly payment. Credit counseling may not reduce your payment greatly, but it should lower it some due to reduction in rates.
- Avoid late fees and over limit charges. Credit Counseling can help you reduce these charges, though your creditors don't have to agree.
- Simplify your payments. You make only one payment to the credit counseling program, instead of sending individual payments to each creditor.
- Stop collection calls. Payments are sent to your creditors each month, so you won't be harassed by collection calls.
- No late payments. Because your creditors receive payment each month, your credit score will not suffer due to late payments.
Credit Counseling Drawbacks
- Payback 100% of your debt plus interest
- May not be able to lower your monthly payment significantly
- Viewed as similar to a Chapter 13 bankruptcy, if you apply for new credit
- High drop out rate. About 75% of clients who enroll drop out.
Debt settlement works to resolve your debts by negotiating reduced balance pay-offs with your creditors. In a debt settlement program, you choose to stop making payments to your creditors, who would not be willing to accept a settlement if you are sending them payments as agreed.
Debt Settlement Good Points
- Smallest monthly payment to become debt free, while avoiding bankruptcy
- Resolve your debts in the shortest time, outside of bankruptcy, 24-48 months on average
- No fees until an account is settled, if you work with a reputable settlement company
- Professional, experienced negotiators handle your settlement negotiators
Debt Settlement Drawbacks
- Your credit score is harmed. Unless getting out of debt is more important to you than your credit score (which may be damaged already), you should not choose debt settlement.
- Potential tax liability. Forgiven debt may need to be claimed as income on your tax return, unless you're eligible to avoid declaring it by using the IRS Form 982.
- Potential collection actions. Because no monthly payment is received by your creditors, they can choose to pursue collections against you.
Even if you are working with one of the best debt consolidation programs, you have to take the right steps to make it work:
- Make a budget and keep to it.
- Do your homework. Check out the history and reputation of any company you consider. Make sure you understand how to find a reputable debt consolidation company.
- Read reviews from current and former customers of different debt consolidation companies. You can start with reader reviews at Bills.com, reading which programs they say are the best debt consolidation programs.
- Make your required program payment each month. A large number of people don't complete their debt consolidation programs, because they don't make all their payments. Make sure that you can afford your required payment, before you commit to making it.