What You Need to Know about Debt Negotiation

free from debt
Free Yourself from Debt!

Those in debt know that the bills begin to pile up. Credit card bills, other loans, medical bills, and school expenses all build on one another and drive you further down into debt. So what can be done to free yourself from all these things strangling your finances? Debt consolidation options like consolidation companies and debt management programs are available to help free you from your financial burdens. However, if you review those options and they still don’t seem right to you, then you may want to try a form of debt negotiation known as debt settlement. You can use negotiation services to your advantage to lower or completely remove your outstanding balance and free yourself from debt. Here is everything you need to know about debt negotiation.

What is Debt Negotiation?

The purpose of debt settlement is to go into negotiations with your creditors or collection agencies with the purpose of reducing the total amount of debt you owe. You want to try and get the lenders to agree on going down on the amount you owe, and sometimes you can even work out an agreement to erase the debt completely. Personal loans, medical bills, store cards, and unsecured credit cards are all areas in which debt settlement is possible. Student loans that were not issued by the federal government are also up for potential debt negotiation. By getting the creditors to lower the amount of your debt you will either have lower monthly payments or you can pay it off completely.

When is it Right?

Suppose you lose your job or there is a big medical emergency and you suddenly find yourself in debt. You weren’t expecting it and chances are you don’t have the budget to pay off the debt. Debt settlement falls somewhere between a debt consolidation program and bankruptcy. If consolidation isn’t going to work but you don’t want to resort to bankruptcy then you know settlement is right for you. Also if creditors are threatening to file a lawsuit or if they have already passed the process on to a collection agency and those people are harassing you then you should go for debt settlement.

How Does it Work?

Creditors aren’t legally obligated to accept any debt settlement offers that you extend. If, however, they do agree to your offer then it will be based on your total debt amount, the age of your accounts, and the status of your delinquent accounts. Before you go to your creditors you should go to a free debt counseling session so that a professional can review your financial situation and help you decide if settlement is right. Then the settlement company will create a realistic budget based on your income and how much you can afford to pay off on the debt. Depending on the funds you can save up for settlement the company will set up a 2-4 year program term. Then a trust account is set up and this is where you will put a monthly amount, instead of paying your creditors, until you have enough for negotiation, which is usually at about 50% of the total debt you owe. Once the debt settlement company believes you have enough money then they will try to strike a deal with your creditors or collection agencies. If they succeed then you pay of lump sum from the trust account, paying off your debt and freeing yourself financially.

Possible Disadvantages

You do have to pay a fee to the company who negotiates your debt, and this amount will depend on the number of credit accounts you have, the amount you owe to lenders, and how much money you will be able to save through negotiation services. Also, since you stop paying your creditors for a few months to save for negotiation, your credit report marks the account as “delinquent”. This will ruin your credit immediately, though if you’re careful you can improve it over time. Finally, any funds that the creditors forgive the IRS sees as taxable income, which means more money out of your pocket.


debt negotiation
Negotiate Yourself Out of Debt

Debt settlement is a great way to lower your monthly payments, reduce the total amount of your outstanding balance, and get out of debt relatively quickly. You’ll be able to avoid harassment calls from credit agencies and soon enough your accounts will read as “settled” or “paid as agreed” on your credit report. There are some downsides to negotiation, but depending on your circumstances and how quickly you need to be free of debt this may be your best option. As with anything involving your money, think carefully about your budget and current financial situation to determine which debt-relief method is right for you.

Pros and Cons of Debt Consolidation Programs

debt consolidation options
Learn About Your Consolidation Options

Sometimes people fall into debt because of their own fault; other times it is because of unforeseen financial disasters. Regardless of the reason for your debt, it is highly likely that you are looking to get out of it. Though there are many different legitimate options for getting out of debt, a large portion of this website is dedicated to the debt consolidation method because we believe it is one of the best and most efficient. Consolidation happens when you take your high interest debts and place them into a low interest loan, which allows you to only worry about one monthly payment and pay off your debt with less of a financial strain. If you decide on debt consolidation as your method of debt relief then you need to choose from the various consolidation options available to you. Each one has its pros and cons, as you will see below.

Balance Transfers

This option is where you open a new credit card that has low interest and put the balances from your current high interest cards into it. That way you are making low interest payments on a single card instead of multiple ones. This appears extremely appealing and you probably receive such credit card offers in the mail all the time, advertising 0% APR for the first six months and such. This can be a great option, as long as you are careful.


  • All debt is compiled onto one card for easy repayment.
  • Offers are available with low rates, like 0% to 1.9% for a temporary set period.


  • There are fees for transferring your balance from card to card.
  • The interest rate increases the very first time you are late on a payment.
  • You might not even qualify for the low promotional rate if your credit scores are too low.
  • Your old cards become a temptation to spend more because they now have zero balances.

Home Equity Loans

If you are a homeowner you can use the equity on your house to take out a consolidation loan. This method is often called a second mortgage, and lower interest rates are available to you because you are putting your home up for collateral on the loan.


  • The interest rate is less than a typical credit card because the loan is secured with your house.
  • By saving on interest you end up spending less on your monthly payments.
  • In most cases the interest is tax deductible.


  • The interest rate is lower than a credit card but higher than your first mortgage.
  • If you sell the home then the home equity is no longer available for your debt.
  • If you sell you still have to pay off the loan.
  • Defaulting means losing your house to creditors.

Cash-Out Refinancing

This is another way of using the equity on your home as a tool for debt consolidation. Instead of taking out a loan or taking out on your equity you refinance your current mortgage to one with a higher principal, allowing you to access your home equity.


  • Your mortgage is the loan so it will have a relatively low interest rate.
  • You may be able to stretch out the payback time frame so your monthly payments decrease.
  • In some cases the interest is tax deductible.


  • If you sell the home then the home equity on the loan is no longer available to you.
  • Because the loan is secured by your house, defaulting means losing your home.

Personal Loans

These loans are also known as unsecured loans because the borrower is not required to put up any collateral on the loan. This may seem like a better option to those who are not comfortable using their personal property as security.

debt consolidation pros and cons
Weigh the Pros and Cons Carefully


  • The interest rate is less than a typical credit card.
  • The loan is easy to obtain.
  • Even those with bad credit have access to the loan.


  • Interest is better than a credit card but higher than the other options.
  • Interest rate, payment plan, and fees make the overall cost more expensive.

Average Debt Consolidation Interest Rates

average loan rates
Save Money by Knowing the Rates

If you are in debt then it is likely that you have come across debt consolidation loans as one of your relief options. The average loan has a very high interest rate because it is being used to pay off the interest on your other debts. Consolidation loans are very attractive because their goal is to decrease the rate of interest and lower your monthly payments. But different loan options have different interest rates, and sometimes the rates of consolidation loans still catch people off guard. Read here to learn about average rates so you will be prepared when shopping for your next loan.

Basics of Loan Interest

Anyone who is considering borrowing a consolidation loan needs to understand the basics of loan rates so that they can utilize discernment in their decision. Loan rates are variable and influenced by a wide range of factors. The credit scores and credit history of a consumer have some of the biggest impact on the charge of interest. Sometimes people who are struggling with debt are in that situation because of late or missed payments in the past. When these things happen your credit goes down. Your credit history will show these problems and your score will reflect your current state of reliability.

The lender obviously plays a big role in determining the amount of interest because they are the ones who set the charges in the first place. Some lenders may try to cheat you with higher interest rates, and traditionally the qualification requirements for loans have been very strict, so you might not even make it to the loan depending on how credible you are. Non-traditional creditors, such as peer-to-peer (or P2P) lenders, may seem like a better deal because they often accept people with low or no credit. However, because these lenders are risking more by doing this their interest rates are going to be much higher.

Current market rates are also a factor, but they will only make a difference if the borrower has a high enough credit score to get a loan. The market rates may go up and down, but those with above average credit are always going to get the best rates possible.

Average Rates

As mentioned before, when looking for loans those with the highest credit scores are going to receive the best deal. Borrowers with excellent credit can expect low interest rates around 12% to 15%. Many people will fall into the average credit rating category. They are not too high or too low on the scale, but right around the middle. These consumers can expect rates of interest anywhere from 15% to 20%. Someone with a high-average score will probably earn a 15% or 16% interest rate, while those with low-average scores will only be eligible for the higher rates. Poor credit scores sometimes aren’t even acknowledged by lenders, and those with bad credit will be denied loans outright. For the creditors that do accept low credit ratings, they will charge an interest rate above 20%, and sometimes even as high as 30%.


debt consolidation rates
Find the Best Rate for You!

Debt consolidation loans can be an expensive way to handle your debt problem, with interest rates, various fees, and a 2% to 3% closing cost on the loan amount. The rates given in this article are just averages; actual rates will vary a little from lender to lender. The important thing is to shop around and compare lenders before you make any decisions. There are other debt relief alternatives to consolidation loans, if necessary. But in the long run consolidation is a decent and sometimes even cheap method of erasing your debt. You just have to be careful when picking a lender and make sure to find an option that fits in your current budget and financial situation.

Debt Consolidation Made Simple

benefit of debt consolidation
Take Control of Your Debt with Consolidation

Since the recent decline in the economy, many families have found themselves swamped by debt. There are many different options people can turn to for debt relief. Because of its variety and how easy to is to apply for and use, debt consolidation has become one of the most popular. The general principle behind this method is taking multiple high interest debts and compiling them into a single low interest loan. This makes paying debts more manageable since you only have to worry about one, plus it can lower your monthly payments and diminish the long term cost of your debt. If you are careful then debt consolidation will not affect your credit scores in a negative way and you will be on an easier road to financial recovery. Below are some of the more common methods of consolidation.

Ways to Consolidate Debt

Once you choose debt consolidation you then have a number of ways to carry it out. Here are the alternatives that you can pick from.

  • Debt Consolidation Company – Here a consolidation company will offer you a loan, usually backed by some sort of collateral on your part (a house or car, for instance). You can use this loan to pay off all of your existing debts and then you will only have that one debt to stress over. These companies charge fees and commission, but you will only have one monthly payment to worry about. Your current credit score and your budgeted ability to pay back the loan will affect the payback time frame as well as the rate of interest.
  • Credit Card Consolidation – This method works by opening a new credit card account with low interest and pouring the balances from your high interest cards into it. Depending on your credit rating this could be a great option. Just be aware that the low interest on the new card is only temporary, and make sure that it will still be saving you money when the promotional period ends. Also, most banks charge a balance transfer fee to keep people from credit card hopping. Finally, do not make any purchases with the new card while you are still in debt because the last thing you want to do is pile on more.
  • Home Equity Loan – This option is popular with many homeowners and it involves taking out a second mortgage to reduce the equity on your home. Because your personal property is the security on the loan, you will qualify for lower interest rates. Having a good credit history can decrease those rates even more. On top of that, the interest paid on an equity loan is usually tax deductible
  • Home Equity Line of Credit – Much like the equity loan you are borrowing against your home equity. However, instead of taking out one big loan you are opening up a line of credit, like you do with a credit card. With a HELOC you are approved a certain amount of money and you can tap into these funds as you see necessary. These funds can be accessed through a card or checking account and you will only pay interest on the money you actually spend. The biggest catch to both home equity loans and HELOCs is that you risk losing your house if you can’t afford the payments at any point and have to default.
  • Refinance Your Mortgage – If you have been paying regularly on your home mortgage then you might be qualified to consolidate your debts by refinancing this mortgage. Refinance loans usually have lower interest rates and allow you to borrow cash off the loan at the same fixed rate, permitting you to consolidate your debts and pay them off quick. As mentioned in the previous two options, the main downside is that if you can’t afford your mortgage anymore then you risk losing your house to cover your debts. You can find out more information on mortgages here: http://www.currentmortgageratestoday.org/
  • Personal Loans – If you don’t have a home, or don’t want to put one up as collateral, then a personal loan might be right for you. These loan amounts are small and usually do not exceed $5,000, so they are meant as quick fixes. Because the loans are unsecured the interest rates will be higher, although they are still usually lower than credit card rates. If you want to lower the rate of interest then you can take out a secured loan, putting something of value like your car up as security. There is an online category of this loan type known as payday loans. These are well known to be rife with scams, so very careful if you choose that option.
  • Student Loans – Many students that graduate from college owe money on the financial aid they received while enrolled. There are various consolidation options for students, though most do not allow you to save on interest because they just average the rates on your current loans to come up with the new one. However, these loans do offer lower monthly payments and can stretch the payback time up to 25 years. Graduated payments plans are offered in later years that adjust the monthly payment depending on income.
  • Borrowing from Retirement – If you are enrolled in a retirement plan then you may be able to borrow from your 401(k) or 403(b) accounts to consolidate and pay off your debt. You are charged interest on the balance and you generally have five years to pay it off. The main advantage is that you are actually borrowing from your future self. The downside is that there are potential penalties that will have tax consequences and affect the long term benefit of the plan. If the plan is offered through your work and for some reason you lose this job or quit, then you risk losing money by having to repay the loan yourself.
  • debt consolidation
    Don’t Stress – Consolidate!

    Life Insurance Loans – Finally, you can borrow against your whole life insurance policy to consolidate and pay off debts. This is a practical option in the long run because you do not have to repay the money on any sort of set schedule. If you do not have a whole life insurance policy then you can borrow against the cash value of the policy. You can repay the loan whenever you want, or even not at all, but the disadvantage is that it may cost you money that you want or need later on in life.

Debt Consolidation Myths

debt consolidation myths
Unsure What is Real and What is Fake?

Your finances are one of the most complex and difficult things you have to deal with. But because they are so important to your life, you have to work to figure them out if you want financial peace and security. You may hear information that varies from person to person, things are different from state to state, and each aspect of finance has different contracts with various rules and conditions. With so much conflict and uncertainty how do you know what’s best? Financial advisers and counselors, from individuals to companies to websites, are available to help you sift through the ambiguity and find definition and stability in your financial life. Debt consolidation loans is one topic that has a lot of misinformation circling about, so here we debunk some of its top myths.

Consolidation is the Same as Settlement

When you borrow a loan with the purpose of consolidating all of your debts into it, the loan has to eventually be paid back in full. It comes with a lower interest rate that makes monthly payments less. Overall it makes your debt easier to manage and you won’t risk hurting your credit (which can in fact improve over time). On the other hand, debt settlement is where you settle the debt with the lender for less than the full amount, paying back only a piece of what you originally owed. This gets rid of the debt instantly, but will cause a heavy penalty on your credit report that stays on for seven years.

Consolidation Can’t Happen with Bad Credit

Sure, excellent credit scores are going to get you the best consolidation plan with the lowest interest, a higher amount loaned out, and a longer pay back time frame. But you still have options even if your credit is less than stellar. A debt management program is a type of consolidation that works with people who have poor credit. Speak to a credit counselor or research more online to see which consolidation option your current credit level warrants.

Consolidation Negatively Affects Your Credit

No type of credit penalty will occur from a debt consolidation loan or debt management program, unless there is a fault on the part of the borrower. Credit penalties usually happen when you aren’t careful with your budget and you miss a loan payment or make a late one. Such punishments must exist or else lending organizations would constantly be taken advantage of and never make any money. However, know that a consolidation company will try their best to work with you and create a payment plan and schedule that meets your particular financial situation. If you make payments on time and nothing goes wrong for the duration of the plan, then you will be reducing the debt you owe and building a positive credit history that will actually increase your credit scores.

Consolidation Means More Time in Debt

The object of debt consolidation is to reduce the amount owed on your monthly payments, so it may seem logical that this method would take longer to pay off your debt. But since consolidation lowers the rate of interest on your debt, and this interest doesn’t accumulate as fast, you are left with more money overall each month. Most people use this extra cash to pay off more on the debt each time. Also a consolidation plan generally has you paying off your debt more efficiently than the minimum payment schedules created by creditors. Both of these reasons reduce your monthly payments, making consolidation a quicker payoff process than any traditional loan option.


debt management truth
Learn the Truth About Debt!

So there are the most popular myths about debt consolidation and the real truth behind them. Hopefully this clears up the air and you can now make an informed decision concerning your finances. This is just one of many topics that have a lot of misinformation and contradicting facts floating about online. For any aspect of your finances that you are unsure about, it is imperative that you do the necessary research to make sure your money is being handled in the most efficient way possible. Mistakes can lead to low credit scores and financial disaster. If you have more questions about debt consolidation specifically then check out more of the articles on our site. You can click on the “debt consolidation” tag right here at the bottom left and it will take you to a page of articles in that category.

Reasons to Avoid a Debt Settlement Program

avoid debt settlement
Get Rid of Debt Wisely

It is understandable that when hard times come or an unforeseen financial disaster strikes then you may find yourself in debt. It is even more understandable that you would want to get yourself out of this debt as soon as possible. There are many available debt relief options, but don’t go rushing into one without doing any research first. A debt settlement program is one option that often seems more beneficial than it really is. This is a relief method where you hire a debt settlement company to negotiate a one-time payment to your creditors, usually about 40-60% of your total debt, and the creditors drop the rest. This may seem like a quick and easy option, and it is perfectly legal, but there is the possibility that this could put you in worse debt than before. Here are a few of those possibilities.

Extra Fees

Because you are desperate and it seems like such a good choice, debt settlement companies will charge hefty fees for their services. Agencies can charge anywhere from 13% to 20% of your total debt, which you then pay off over a period of twelve to fifteen months. Other companies will charge a percentage of the projected settlement amount. This percentage can be as high as 35%. If you are not careful then you could find yourself paying thousands of dollars in fees before you can even start paying off the settlement itself.

High Attrition Rates

The odds are not in your favor if you decide on a debt settlement program. Though these companies do not release their completion rates, you can find some investigative information online and by looking into their records. One example is when the Federal Trade Commission sued and shut down the National Consumer Counsel for misleading advertising. It was discovered that only 1.4% of their clients had successfully completed a settlement program. Over half had quit the program after already paying hundreds of dollars in fees. This doesn’t mean that there are not good settlement agencies out there; it just shows that a lot of companies cannot keep their customers.

Risk of Being Sued

Debt settlement companies instruct users to stop paying their bills in order to save for the future settlement. These funds are placed in a special savings account until the settlement company deems the time for settlement is right. During this time the company takes out its monthly fees. Because you have stopped paying your bills, your credit scores will fall and your balance will increase with interest rates and late fees. Since creditors are not required to accept a debt settlement offer, and since they are losing a lot of money, they may end up suing to make even on their losses. Most debt settlement programs take 36 months or longer to complete, and creditors usually sue within the second year of nonpayment, making the odds of being sued very high.

In Conclusion

debt relief options
Get Help with Your Debt

Don’t let debt settlement companies make you think this is your only option. If your debt is too heavy you might be better off cutting your losses and filing for bankruptcy. If you have just a little bit of debt you could make do with a debt management program, which is where you pay off your balances completely but with a lower rate of interest. Some people even have luck talking directly to their creditors. These creditors might be willing to work with you to create a new payment plan that better fits your budget and financial situation. If you are unsure of which option is best for you then talk to a credit counselor. The National Foundation for Credit Counseling offers a list of helpful agencies and information. Whatever you do, make sure your decision is well informed so you can avoid being ripped off.

How to Know if Debt Consolidation is Right for You

debt consolidation
Get Out of Debt with Consolidation

The wisest thing you can do when you are in debt is to get out of it. This may sound obvious, but it is easier said than done. There are many different debt relief options, and debt consolidation is just one of them. But consolidation is also one of the most popular methods for saving time and money. Whether or not this is the right plan for you depends on your budget, your credit, and your personal finance situation. The goal of debt consolidation is to take all of your high interest debts and combine them into one low interest debt. By bringing the interest rate down you are also lowering your monthly payment amounts, leaving you with more money each month for other important things. Also the interest savings could be applied to the loan principle, which would allow you to pay off the loan faster and be out of debt sooner.

Consolidation Options

Here are the three most common methods of consolidating your debt:

  1. Balance Transfers – You can take advantage of low credit card balance transfer rates. If you have multiple high interest credit cards then you can take out a single card with low interest and apply the balances on the other cards to that one. Just be aware that credit card providers usually charge a transfer fee to keep people from card hopping to avoid interest rates.
  2. Home Equity Loans – If you have available equity on your home then you can take out a home equity line of credit. This option also comes with a lower interest rate and in most cases the interest you do pay is tax deductible. Check with a tax adviser to know for sure before you take out the loan. The only downside is that the monthly payments you give to the equity loan are on top of the monthly mortgage payments you are already making.
  3. Unsecured Line of Credit – This consolidation option, known by its acronym ULOC, is where a bank grants you access to an unsecured line of credit on the premise that you will pay it on time and with interest. It is much like a credit card in this regard. However, instead of getting an actual card from the bank, you will be provided with checks to access your funds.

Secured vs. Unsecured Loans

You need to know the differences between unsecured and secured loans before you agree to any consolidation terms. When you take out a secured loan you are agreeing to put something of value up as collateral, like a vehicle or your house. Because the lender has this security you pose less of a risk, allowing the interest rate to be lower and the total amount borrowed to be higher. Of course the disadvantage is that if for whatever reason you are unable to pay the loan and have to default, then the creditor can take whatever you put up for collateral and sale it to make even on the loan. If you are not careful you could lose your home or your car. On the other hand, an unsecured loan does not require this security and is instead based entirely on your credit history. Credit cards and personal loans (like ULOCs) fall into this category of loan. The benefit is that you do not risk losing any valuable personal property, but the downside is that the lower your credit score is the higher the interest rates will be.


debt consolidation programs
Get the Debt Relief You Deserve

You want to make sure that whatever loan option you choose isn’t going to cost more in the long run or cost too much and force you to default. Review your financial situation and ask some important questions. Is the interest rate fixed, variable, or set with an expiration date? Will you incur penalties if you pay the loan off early? How long is the loan term and will the monthly payments fit into your budget? A debt consolidation loan can be a great way to get out of debt and fix your credit situation. You just need to make sure you pick the option that works best for your current circumstances.

How to Avoid Debt Consolidation Scams

internet scam
Suspect You are Being Scammed?

Everyone who is currently in debt is desperate for some kind of relief. There are many different ways to find this relief, but the easiest is to hop on the Internet and start looking around. One can find great resources and lenders for loans, consolidation programs, and other types of debt help. However, because of the ease of the Internet and the desperation of the borrower, there are also many fraudulent websites and agencies out there. As more people turn to look for professional help, more sites crop up that seem qualified but are actually scams. They can have important sounding names and professional looking page designs; all of which are used to fool the average borrower. Falling prey to these con artists usually results in the loss of money and personal information. To help avoid these scams you need to know the difference between a real site and a fake one.

What to Check For

Before you enroll in any debt consolidation plan or apply for any type of loan you need to check a few things. The first thing you need to research is the company’s accreditation and authority. This is the easiest way of knowing if a company is legitimate and licensed to work in your state. The two ways to do this are to check the Better Business Bureau’s listings or to contact your state’s Attorney General’s office. You can also dig into the agency’s history to see if they are authentic. See if they have a past record and what their success has been working with borrowers. See if any customers have lodged complaints with them previously. If the agency has no identifiable history and seems brand new, then it is a good bet that they are a scam. Lastly, you can look for customer testimonials. Ask people you know whether or not they know anything about the company. You can research on the internet to see if anyone is talking about them. Any credible website will also provide such testimonials for you themselves.

Common Scam Practices

Here are some of the most common scams that fake debt help websites use. If you land on a page that asks for any of these things then back out immediately.

  • High Upfront Fees – The Credit Repair Organizations Act states that no company is allowed to request payment from you until they have begun to complete the services you applied for. The first signs of trouble should be if a site says you are required to pay an upfront service charge or if it asks you to pay more than a predetermined percentage based on your debt.
  • Low Interest Rates – Sure, the level of interest rate is an important aspect to factor into your decision making process, and some companies do offer decently low rates. But if you are already in debt when you are applying for the loan then the interest rates just aren’t going to be that great. If you see a website that offers unbelievably low rates then it is probably a scam. This facade is usually hiding other charges that will bump up the consolidation cost later on. A full disclosure on the company’s fees and terms and conditions should be given to you before you apply.
  • Need for Personal Info – A certified and credible company will always offer you a quote of their services with little to no personal information required. If a site asks for your social security number or bank account details then they are probably looking to steal your personal information and your identity.
  • Unethical Advice – Most fake companies and agencies are going to tell you that you don’t have to contact the credit bureau or seek credit counseling. They might even tell you to deposit money into a trust account to stop paying debts and suggest creating a new credit identity to escape the financial burdens of the current one. All of this advice is unethical and some of it is also illegal. If the information or guidance given sounds questionable, then either ditch the site entirely or do your research before applying.

In Conclusion

debt consolidation scams
Make the Right Choice to Protect Your Money!

This article might make it sound like there are no good and honest debt relief organizations out there, but that is not true. It is just important to be very careful when it comes to one’s financial security. There are plenty of loan programs and debt consolidation companies that will assist you in getting out of debt with a reasonable plan. You just need to do the research beforehand to make sure that you aren’t falling for a payday loan scheme or some other Internet scam.

5 Ways to Pay Off Debt and Secure Your Finances

debt management solutions
Stop Losing Money on Debt with These Options

Debt is something that affects almost everyone at some point in their life. It doesn’t always have to have negative connotations either. A lot of people are forced to take out what is known as good debt, like loans to pay for a house or to afford a child’s college education. But then there is bad debt. This is the kind that happens when you max out credit cards or borrow a loan you end up not being able to afford to pay back. This is also the kind that ruins your credit scores and puts your financial life in hardship. Some people have both kinds of debt and then an unexpected disaster strikes and all their debt turns into bad debt. Luckily, there are resources and methods you can utilize to help relieve you of your monetary burdens. Here are five specific ways to free up your debt and get the relief you need.

  1. Debt Consolidation – You get an unsecured (no collateral provided) or a secured (collateral provided) loan at a low interest rate to pay off your debts that have a higher rate of interest. It mainly depends on where your credit scores stand. The better the credit, the better of a deal you will be offered from loan lenders. The benefits of consolidating your debts are an interest rate reduction, lower monthly payments, and a gradual improvement in your credit score over time as you pay off the loan.
  2. Debt Settlement Plan – For this plan you must contact a settlement agency or a law firm to discuss your financial situation and future goals. If during your consultation it is decided that settling some, or even all, of your unsecured debt is a cheaper option then your current plan, then the company will create a trust account for you. They will then negotiate with your creditors to see if they can settle the debt for less than what you originally owed or with better terms. Benefits include a smaller amount to pay back and the potential to be out of debt sooner than a debt management program and bankruptcy.
  3. Debt Management Plan – If, instead of opting to settle your debts off, you decide you just want to try and manage them more efficiently then you can contact a credit counseling organization. They will offer you debt counseling and advice, as well as help you create a practical budget based on your situation. They can even negotiate some with creditors, not to get rid of the amount owed like debt settlement, but at least to possibly lower the interest rates some. This method also eliminates any late fees or penalties that have occurred, sets up a manageable debt payoff time frame of less than five years, and brings delinquent accounts current again.
  4. Chapter 7 Bankruptcy – When you go to court to file for bankruptcy you have two options. For this one a court-appointed trustee takes all of your non-exempt assets (second cars or properties, bank accounts, cash, expensive instruments, family heirlooms, etc) and sales them to help pay off your debts. The debts are usually discharged within a 4-6 month period. After these debts are discharged you cannot be sued by creditors named in the bankruptcy. This type of bankruptcy can be devastating, but some benefits are: being able to protect some retirement accounts from creditors and being able to reaffirm secured debts, like a mortgage or car loan, to keep those assets.
  5. Chapter 13 Bankruptcy – This is the second option for bankruptcy filing and it is often referred to as a “wage-earner’s plan”. What happens is the court takes control of all of your finances and accounts. They then arrange and supervise a full or partial repayment of all debts in a 3-5 year plan. You can keep your regular source of income and this plan also allows you to keep your property and your personal assets. As with Chapter 7 bankruptcy, your creditors cannot try and sue you while you are under this plan. The payments made toward your debts are fixed with no interest, and in some cases you can even get the principle amount you owe reduced.


debt relief options
Relief is On its Way!

These are all viable debt-relief options. Just remember that they are not without their individual drawbacks. The first three plans often involve paying extra fees and charges for the outside assistance you receive. And if you have bad credit then the interest rates will be higher and the amount offered to borrow lower, making them still useful but less appealing. Though both types of bankruptcy will bring you out of debt, neither one should be used unless the first three choices didn’t work and it is your very last resort. Filing for bankruptcy heavily damages your credit and will stay on your credit report for ten years, making it difficult to finance, obtain good deals on credit cards, and borrow loans in the future. Review each option and your own financial situation carefully to decide which method is right for you.

Debt Consolidation Programs vs. Debt Consolidation Loans

debt relief solutions
Unsure What to do About Your Debt?

When people find themselves swamped by bills and overwhelmed by debt they are desperate to find a remedy for their financial situation. There are many different debt relief options available; however the method of consolidation is one of the most popular. The general principle behind debt consolidation is taking all of your separate debts and compiling them into a single payment plan. That way you only have to worry about one bill and much stress and hassle is removed. Within the consolidation method you have the choice between consolidation loans and consolidation programs. Because of their similar names some people might think they are the same thing, but they are not. Prospective borrowers should learn the difference between each so that they can make the most informed decision to relieve themselves from debt.

Consolidation Programs

In this option a debt consolidation provider will offer you a new debt repayment plan. The borrower takes all current bill and loan payments and puts them into this new plan. You don’t have to borrow any money or take out another loan, you’re simply paying back all of your unsecured debts on one monthly payment plan. The two main debt consolidation programs are the Debt Management Plan (DMP) and the Debt Settlement Plan (DSP). The main benefit of this option, other than not having to borrow more money, is that the monthly payment is usually lower on the new plan. Also collection calls will begin to drop off after a few months of consistent payments and, because you are no longer able to use any credit or store cards, there is a better chance that additional debt will not accrue while you are in the program. The only disadvantages are that it can be difficult to acquire new credit while you are enrolled and missing payments or defaulting can ruin your credit score. The requirements you must meet to qualify for this type of consolidation option are:

  • A source of income
  • At least two creditors that need repayment

Consolidation Loans

For this plan you pay off all of the outstanding bills and loans you currently have with a new loan you obtain from a lender. Then all of your monthly payments are assembled into one payment that is made to this new creditor. By paying off all of your current debt with this new loan you in turn get a lower monthly payment and lower interest rates. Both of these benefits mean that your cash flow each month will be greater in the short term. Also, you only have to worry about one fixed monthly payment instead of multiple ones. On the other hand, smaller payments means they are stretched for a longer time frame and you will be in debt longer than you might be otherwise. Another disadvantage to look out for is that almost all consolidation loans are secured, so should you fail to pay you risk losing whatever personal property you put up as collateral. Finally, your credit cards will show huge available amounts because all of the debt has been switched to another lender. Don’t fall in to the temptation of putting even more on your cards when you are already trying to pay off debt, or else the debt will just keep piling up. Requirements to qualify for this type of consolidation are:

  • Having a source of income
  • Proving you have lived in the same place for at least two years, which shows stability
  • Showing your payment history, which proves you are reliable to pay your debts on time
  • Having enough equity in your home to use as collateral (you can consolidate without a home, but the amount available to you will be lower)

Other Factors to Consider

One thing you need to think about before you choose either option is where your credit rating stands. The higher your credit scores, the better of an interest rate you will qualify for on a loan. If you have bad credit then the rate of interest will be much higher on these loans. If the rate on the loan is super high then it may possibly accrue interest too fast and bump the monthly payments up to more than what you were paying before the loan. If your credit scores are less than stellar a debt consolidation program is probably the better option. When joining a program through a credit counseling agency your credit rating does not affect the aid you receive. Also, if you have a credit card addiction then a debt management program might be a better consolidation choice. As mentioned before, spending on credit cards while you are in a consolidation loan plan will just cause more debt. If it gets too bad then you won’t be able to afford making payments on your loan and you will be in a much worse place than you were before. Fortunately, most DMPs restrict the use of credit cards so you won’t have to worry about this being an issue.


debt consolidation plan
Find the Right Consolidation Plan Today!

It all boils down to the individual. You know what kind of spender you are, what your budget is, and where your current debt lies. Knowing all of this information you should be able to make a wise decision about which consolidation option is right for you. If you still have doubts or questions then make sure you do the necessary research before you make a decision. If you choose a consolidation program then you will still have to decide between debt management or debt settlement, and all of the different providers that come with each. If you choose a consolidation loan then you will have to pick from thousands of different lenders. Use the information in this article and on this website to direct your search in the most efficient way possible.