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This can be an excellent way to consolidate debts because it doesn’t require you to borrow any money. It means contacting a non-profit consumer credit counseling agency, where you would have a debt counselor that would thoroughly review your finances and then suggest either a budget or a debt management plan (DMP).
A DMP would consolidate your unsecured debts as you would no longer pay your lenders. Instead, you would send a payment each month to the consumer credit counseling agency, which would then disburse the money to your lenders.
Consumer credit counseling agencies usually charge just a minimal amount for their services like $25 a month to manage your DMP. However, your credit card companies will close your accounts, so you would have to learn to live without credit cards. And it generally takes four to five years to complete a DMP.
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Option #4: Debt settlement
This option has become increasingly popular since the Great Recession of 2007. The reason for this is because it can save a considerable amount of money by settling, or paying off, debts for less than their balances.
While you can settle debts yourself, most people choose to use a debt settlement company. There are two important reasons for this. The first is that it’s also a way to consolidate debts because you would transfer a set amount of money each month to an FDIC-insured trust account instead of having to pay your unsecured lenders. As money accumulates in your trust account, the settlement company will use it – with your permission – to settle your debts. This process generally takes from 24 to 48 months, depending on how much money you owe.
The second important reason to use a debt settlement company is that it does the negotiating for you, which removes all the stress and strain of dealing with your lenders and maybe also debt collectors.
Debt settlement companies are for-profits and charge for their services. However, using one can still save you thousands of dollars and help you achieve the thing you want most – debt relief.