Credit Card Debt Consolidation
Many Nevada residents facing credit cards and other unsecured debts are searching for a debt relief option that will not only provide much-needed relief, but potentially save a substantial amount of money each month. The objective of a debt consolidation program is to combine or "consolidate" multiple high interest unsecured debts into a single, more affordable and more structured payment each month made to a debt consolidation company. The debt consolidation, or credit counseling company then has the task of distributing on time payments to each of your creditors until all debts in the program are paid off, or resolved. Obviously, for the funds to be distributed to creditors each month by the debt consolidation company, those funds must be available for withdrawal each month from the consumer's account. But before we go into more details regarding how a debt consolidation debt relief program works, let's take a moment to understand how a credit card debt consolidation debt relief program compares to a debt consolidation loan.
Debt Consolidation vs. Debt Consolidation Loan
The objectives of both debt consolidation and a standard debt consolidation loan are similar, but the process is actually quite different. In the case of a debt consolidation or debt management plan coordinated with the assistance of a credit or debt counselor, one of the first steps is for the credit or debt counselor to conduct a brief interview with the debtor to gain a clear understanding of the total unsecured debt amount the consumer is carrying, and the amount of money each month that can reasonably be directed to payoff or pay down debts. With this information in hand, the credit counselor can then customize a strategy or a plan to "consolidate" multiple high interest debts into a single, more affordable, and more predictable payment each month. These plans, called Debt Management Plans (DMPs), can help consumers resolve debts as quickly as possible, at a pace they can afford. It's important to understand that debt management plans are only effective if creditors agree to accept proposals on behalf of the consumer requesting the benefits of lower interest rates and generally more favorable repayment terms.
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A debt consolidation loan involves a quite different process to resolve high interest debts – and it follows that it involves taking on more debt in the form of a loan. The strategy behind a debt consolidation loan is to take multiple high interest credit cards and other debts and paying them off all at once with the proceeds from a debt consolidation loan. In theory, a debt consolidation loan seems to be a logical and practical way to "convert" multiple high interest debts into a single, lower interest rate loan. However, consumers should recognize that debt consolidation loans normally require that one's home or other asset be used as collateral in order to get approval for the loan. That means that if the borrower, already struggling with debts, hits an even more challenging time, they could be putting their home or other asset at risk. In this scenario, the borrower who takes out a debt consolidation loan may have, without fully realizing it, traded "unsecured" debt that doesn't put their home at risk into a "secured" debt that puts their home at risk.
In addition, many consumers who choose to pay off credit cards with the proceeds from a debt consolidation loan often may fall victim again to the "plastic promise" of buy now pay later and they end up quickly accumulating a whole new round of credit card debts. When this occurs, consumers now have BOTH a debt consolidation loan and multiple high interest credit cards to wrestle with. Thus, the situation has gone from bad to worse and the of debt treadmill continues full speed ahead.
How Debt Consolidation Works
Also known as a debt management plan (DMP), the goal of a debt consolidation program is to combine or consolidate multiple high-interest consumer debts into one, more manageable payment each month. Through the benefits of debt relief such as lower interest rates and the waiving of late fees and penalties, a debt management plan coordinated with a credit counselor or debt counselor can provide personalized assistance for consumers who need a proven, predictable, accelerated pathway to reduce or resolve debts and get on the path to debt-free living.
How are debt management plans customized for consumers? A credit counselor (or debt counselor) typically will interview consumers to gain a clear and accurate record of all of their debts. Then they will go through a budget analysis with consumers to determine how much money can be reasonably directed each month to pay down those debts. Finally, based on a clear understanding of the consumer's financial situation, they will create a financial debt reduction game plan (a debt management plan or DMP) and send proposals to each of the consumer's creditors requesting the benefits of debt relief for the individual or family going through a financial hardship. These benefits typically include lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who agree to the debt provider's proposals are then added to the debt management plan. For those that do not, it's important to understand that consumers are still obligated with creditors according to the terms of their original agreements. Overall, debt consolidation or debt management plans (DMPs) can be very effective and save a substantial amount of money if consumers commit fully to STOP using credit cards and begin the process of paying down the principal amount of debt on time, month after month, at a LOWER INTEREST RATE.
Will a debt consolidation or debt management plan help you resolve debts faster and how much would you save? Find out by taking a moment to request your free debt relief analysis and savings estimate today.
State Financial Assistance
While debt relief programs help many Americans during times of financial hardship, many individuals and families in Nevada may also benefit from state-assisted programs and services to help cover utility bills, grocery bills, or other expenses. To assist with their needs, the state offers such programs like Nevada Check Up (SCHIP), Nevada Energy Assistance Program, and the Head Start program, among others. To learn more about these services designed for low-income families and individuals, go to the state's homepage Benefits section.
Comparing Debt Consolidation with Debt Settlement
While credit counseling is a method of debt relief that has helped many individuals and families, it's important to know that debt management requires a fair measure of discipline and restraint to avoid relying on credit cards. In addition, debt management programs typically take three or more years to complete in order for the consumer to realize all of the money saving benefits of debt consolidation. A popular alternative to debt management, especially for those who are facing the possibility of bankruptcy, is debt settlement. Debt settlement, or debt negotiation, is considered a more aggressive form of debt relief that may help consumers, facing the prospects of bankruptcy, get out of credit card debt faster. This is assuming they can accumulate money in a "set aside" account which can later be used as the lump sum settlement source needed to reach a successful settlement with individual creditors.
With debt settlement, it's important to recognize that, when consumers fall seriously behind in payments (60-90 days or more), credit card companies may choose to "sell off" debt as "bad debt" to a third-party collection agency. In this situation, creditors may recoup as little as 10 cents on the dollar. While it is not typical for credit card companies to settle for as little as 10 cents on the dollar, it does stand to reason that credit card companies may be willing to accept a reasonable settlement offer made by the consumer or by a debt settlement company working on the consumer's behalf. There are several other important considerations to be aware of when exploring the debt settlement form of debt relief: When consumers default on the terms of credit card agreements in order to set aside monies in a settlement account, creditors may threaten or take legal action. In addition, money saved through credit card negotiated settlements are subject to federal taxes (Imagine, saving $10,000 or more as a result of a credit card settlement and, without expecting it, getting a tax assessment for the additional "income"). Finally, debt settlement normally will have a negative impact on one's personal credit, but not as serious or long lasting of an impact as personal bankruptcy.
If you are experiencing a financial hardship and facing high cards and other unsecured debts, take a moment to answer a few simple questions and request your free debt relief analysis and savings estimate.