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I f you’ve spent any time at all on the Internet looking for help with your debts, you've probably seen all those ads promising debt consolidation, debt consolidation loans, debt relief and on and on. I recently searched on the term debt relief and Google promptly presented me with more than 50 pages of results about the term "debt relief".
Understanding debt consolidation
Debt consolidation sounds like a good deal and it can be. What it basically amounts to is consolidating all of your debts together into one payment. There are several ways to do this. One of the most popular is a debt consolidation loan. It's where you go to a lending institution such as your bank or credit union, borrow the total amount of money you owe your various creditors and use it to pay them all off. There are several benefits to a debt consolidation loan, not the least of which is that you get all those creditors off your back. You will have just one payment to make a month instead of the multiple payments you’re probably making now. And that single payment should be less than the total of your current monthly payments.
Other ways to achieve debt consolidation
In addition to debt consolidation loans, there are several other ways to consolidate debts. One of these is to go to consumer credit counseling agency. Another is to transfer the balances on all of your credit cards to a new one that has a lower interest rate. As an example of this, I received an offer just today for my main credit card provider offering to transfer the balances on any of my other cards to its card at my normal purchase interest rate and with no transaction fee. If you were able to find an offer like this then a balance transfer could make good sense.
What's is missing in this picture?
Regardless of which form of debt consolidation you choose, there is one thing missing – none of them will reduce your unsecured debts. If you currently owe $15,000, you will still owe $15,000 whether you get a debt consolidation loan, transfer your balances to a new card or do credit counseling. In fact, there are only two ways to achieve debt reduction. One is to declare bankruptcy. The type of bankruptcy most people choose is a chapter 7. It will dismiss most of your unsecured debts, such as credit card debts but not secured debts like an auto loan or a student loan. You will be allowed to keep some of your assets but others could be sold off to pay your creditors.
The biggest negative of bankruptcy
The problem with declaring bankruptcy is that you won't be able to buy a car or a house for thee to four years and when you do get credit, it will come at a much higher interest rate. In addition, bankruptcies are a public record. A potential employer or the federal government will always see your bankruptcy and that could have a very negative affect on your life.
A better form of debt reduction
A second and we think better way to get debt reduced is through debt settlement. This is where we negotiate with your creditors to get your debts reduced, probably by as much as 50%. Debt settlement will have an effect on your credit score but not as serious a one as if you had declared bankruptcy. I read recently that debt settlement will reduce your credit score by about 50 points while a bankruptcy could lower it by as much as 200 points. In other words, if you had a credit score of 650 before you declared bankruptcy, your score could now be as low as 450. Contact us today for more information on how we do debt reduction through debt settlement.