In North Carolina as it is in other states across America, many individuals and families are in search of debt relief. If you are in a similar situation, there are a variety of debt relief options available - such as debt consolidation, debt settlement, or even bankruptcy - that can typically help you reduce your credit card debts as well as other unsecured debts that you may have accumulated due to unforeseen circumstances. Perhaps you have been laid off from your job, had an unexpected medical emergency to deal with, or you simply hit a rough patch financially.
The good news is, debt relief is available - whether it is in the form of debt consolidation or debt settlement. These two options have, in recent years, become popular alternatives to bankruptcy - which can have a more damaging and longer lasting effect on personal credit.
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Debt Consolidation Through Credit Counseling
The term "debt consolidation" (also known as a debt management plan or DMP) has come to represent the different types of debt relief options available. However, what debt consolidation typically involves is "consolidating," or combining, multiple high-interest credit card debts into a single, more structured, and more affordable monthly payment made to a credit counseling agency - that in turn, will disburse those funds to creditors. If you are considering debt consolidation, this is a typical scenario:
When you enroll in a debt management plan, you will speak to a credit counselor who will review your financial situation, your debts, and your ability to pay off those debts. Once the credit counselor has a clear picture of your financial situation, he or she will typically develop a more affordable repayment plan and submit proposals to your creditors asking for reduced interest rates, or the waiving of late fees and other penalties. Creditors that agree to the proposals are generally placed into the debt management plan.
The goal of debt consolidation is to provide a single, more affordable, and more structured payment plan. This plan will allow you to, hopefully, direct more of your payment into paying off the principal of your debts versus just the interest, and help you reduce your debts sooner than if you continued to make the monthly minimum payment on your credit card bills at higher interest rates.
The Debt Settlement Alternative
For many consumers struggling with credit card debts, another viable debt relief option is debt settlement. If this sounds like you, it's important to understand the main difference between debt consolidation through a credit counseling agency and debt settlement. Unlike debt consolidation where consumers pay ALL of their debts, in debt settlement, consumers are hoping to settle or negotiate for an amount LESS than what they actually owe.
As with other debt relief options, there may be potential risks involved with debt settlement. Consumers who work with debt settlement firms are typically advised to stop paying their credit card bills to build up funds, over a certain period of time that they can use to make a reasonable settlement offer (or a lump-sum amount). In many cases, creditors will typically threaten consumers who default on the terms of their credit card agreement. In addition, consumers who default on the terms of their credit card agreement will typically see a decline in their credit scores.
Despite these risks, debt settlement remains a popular alternative to bankruptcy, which is also a form of debt relief, but is usually the option of last resort for many consumers. In addition, bankruptcy can have a more negative and longer lasting impact to personal credit.
Know What Debt Relief Option is Best for You
When exploring your debt relief options, make sure that you understand as much as you can about debt consolidation, debt settlement and bankruptcy. Even though they have become popular practices, it is wise to find out the amount of money you can potentially save, how long it will likely take to realize those savings, and the potential impact to your credit score of each of these debt relief methods.
The bottom line is, if you are struggling with credit card debts, help is available in several forms including Debt Consolidation, Debt Settlement, or even Bankruptcy.
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