Will Debt Consolidation Without a Loan Help You?
Many residents in North Carolina, as well as in other states in America, are looking for proven ways to get relief from their high-interest credit card debts and other unsecured debts. If this sounds like you, there is good news. These days, there are several debt relief options available, including debt consolidation loans, debt management, or maybe even debt settlement. A debt management plan (DMP), or debt consolidation, typically involves combining, or "consolidating," your debts into one, more structured, and more manageable payment made to a credit counseling agency to be distributed to individual creditors.
On the other hand, debt settlement is a process where you are hoping to settle or negotiate with creditors for substantially less than what you owed. A debt consolidation loan is when you combine your high-interest credit card debts into one, lower interest loan. Today, these debt relief methods have become popular alternatives to bankruptcy, which can have a more serious and longer lasting impact to personal credit.
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Debt Consolidation vs. Debt Consolidation Loan
These days, the term "debt consolidation" has come to represent a variety of debt relief methods. However, what debt consolidation typically involves is combining or consolidating your unsecured debts into a single, more affordable, and more manageable monthly payment made to a credit counseling agency. Some people may even refer to debt consolidation as a debt management plan.
When you enroll in a debt consolidation program, credit counselors will assess your financial situation including your debt amounts. Once they have all the information they need, they will typically develop a strategy that may help you reduce your debts. Your credit counselor(s) then submits proposals (on your behalf) to creditors asking for reduced interest rates that waive or eliminate any late fees or penalties, and generally, more lenient repayment terms.
Creditors that agree to the proposals will generally be placed into the debt management plan. With a new, more structured, and more affordable plan in place, you can, ideally, direct more of your money towards paying off the principal of your loans rather than just the interest - and hopefully, reduce your debts sooner than if you continued making the monthly payments on your credit card debts at higher interest rates.
Secured vs. Unsecured - Loans
A debt consolidation loan, however, is fundamentally different from debt consolidation through credit counseling. As noted earlier, debt consolidation involves combining one's unsecured debts into a single, more affordable payment plan made to a credit counseling agency.
On the other hand, with a debt consolidation loan, you would combine your high-interest debts into one, lower interest loan. Typically, a debt consolidation loan involves taking unsecured debt and paying it off with funds that come by way of a "secured" loan, meaning, a loan where you would have had to put up your home or other asset to get approved.
In many cases, consumers who get approved for a debt consolidation loan typically end up using their credit cards again - as a result, they may have new, high-interest credit card charges to deal with on top of their loan. In these cases, a debt consolidation loan has generally managed to make their debt situation go from bad to worse.
Debt Settlement - an Alternative
As previously mentioned, another debt relief alternative is debt settlement, where consumers hope to settle or negotiate with their creditors for significantly less than what they owe. A few words of caution, however, if you may be considering debt settlement: As the term implies, credit card companies are certainly not legally required to "settle" or accept the settlement proposal.
In many cases, consumers are also advised to stop making their credit card payments so they can accumulate funds over a period of time that that they can use to make a reasonable settlement offer. In these cases, creditors may threaten to sue those consumers for defaulting on the terms of their credit card agreements. As a result, consumers who stop paying will typically see a decline in their credit scores.
However, in spite of the potential risks, debt settlement remains a popular alternative to bankruptcy - which can have a more serious and longer-lasting effect on one's personal credit. The bottom line is, no matter how overburdened you are with credit card debts, there is help available - be it in the form of a debt management plan, debt consolidation loans, or debt settlement.
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