Michael Brazier

Credit Debt Solutions: Understand the Different Options



Posted: Tuesday, December 22, 2009

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freedom debt management

There are many different ways to eliminate unsecured debts  and it is important to know how to differentiate between your options to make  certain the one you have chosen best fits your needs and financial goals long  term. We will outline the various ways available in the debt management market.   THE LONE LOAN: A consolidation LOAN- not a plan or program –  is a loan obtained to pay off all unsecured debts by consolidating them all  into one loan for one rate and monthly payment. This can be effective for some  people but the term –robbing Peter to pay Paul- comes to mind as all you are  really doing is taking out another unsecured debt to merge a multitude of  debts. Something to keep in mind as well, the rate of the loan. You will want  to know and understand your default terms as most lenders take a delinquent or  missed payment as an opportunity to increase your rates. Now you are back to  square one.

SETTLE FOR LESS: Debt Settlements, ahhhh –debt relief…for  the right person based on your financial situation and long term credit goals.  A debt settlement program is another way to eliminate debt that utilizes  similar terminology like, just one monthly payment, debt management,  debt consolidation, and debt relief. A settlement  program pays back the debt at a reduced amount from the original amount owed,  usually between 30%-60% less. While this may sound appealing to everyone it is  only beneficial to a certain few. In order to settle a debt it must first –charge  off- A charged off debt reflects poorly on your credit for 7 years as a bad  debt, paid in full or not. An account does not charge off until it has been  delinquent for 5-6 months of non-payment. Collection calls are usually  consistent and some creditors will still take legal pursuit to resolve the  debt. When the debt is settled upon the difference is then considered taxable  income the following year and the debtor is issued a 1099 form to claim the amount  as taxable income.

  If you have had a financial analysis on your monthly budget  and are extremely over-extended a settlement plan may help you avoid filing bankrupt.  If your primary concern is eliminating your debt and you have no major purchases  to consider for the next 7 years then your credit score is not your primary  concern and this could be the best available option for you.

  CONSOLIDATE:  Debt  consolidation, credit counseling, can be beneficial for someone looking to stop  using their cards and improve their credit over time. Like settlements and  consolidation loans, the same terminology is used to describe the services. One  monthly payment, debt elimination, debt management, consolidate your credit,  etc. A debt consolidation plan allows you to pay back the total debt amount with  monthly payments at reduced rates with the stopping of other fees. Most consolidation  companies have agreements with creditors and established guidelines for minimum  monthly payment requirements, which can be less the minimums you are currently  paying.  While making minimum monthlies  in a consolidation plan the consumer is able to watch more of their monthly  payment decrease the outstanding balance as the creditor fees stop once  enrolled and the finance charges are reduced to fixed rates. Like the other  plans it also allows the convenience of one monthly payment. A credit score can  improve over time as 35 percent of your score is determined by timely consecutive  payments. Another 30 percent contributes to the outstanding balance due between  all accounts. With reduced interest the balances decrease much faster than if  attempting on your own.

  The accounts consolidated must be closed upon entering the plan  but most plans allow you to keep one account open for emergencies. A  consolidation plan can help increase your credit score with timely payments and  eliminate your debt faster at reduced rates.

  In doing your research you will first want to assess where  you currently are with your finances, where you want to go, and how you will  then get there. Going through a free budget counseling session with a certified  credit counselor is a good start to help assess where you are currently at and  what your options are. Working with a non-profit is your best bet and will help  you avoid any extra costs going through a third party. A check with the Better  Business Bureau of a company is always a good idea to see what type of  reputation they have from previous clients.

  Call 800-905-1563 to talk to a non-profit certified credit  counselor today to explore what your options may be and for a free budget counseling session. You may also visit our website freedomdm.org and complete our online  inquiry form for a counselor to contact you at a time you are available.

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