What Are the Impacts of Debt Settlement Or Debt Consolidation on Your Credit Score?
For people who are carrying too much debt and are having difficulty making their payments, debt consolidation or debt settlement can be viable options. While it is generally known that falling behind in your payments or missing payments will result in damage to your credit rating, many people are unsure how debt consolidation or debt settlement will affect their credit score. To see the ramifications, let’s begin by understanding the two processes.
Debt Settlement
Let’s say you have three credit cards with a total balance of $18,000. At an average annual percentage rate (APR) of 23%, you must pay a minimum of $525 per month to avoid default. It will take you 411 months (over 34 years!) to pay off your debt, and you will pay $33,844 in interest. If these numbers seem shocking, you can go to any free online credit card debt calculator website and run the numbers for your own credit cards.
There is a better way. Before you contact a debt settlement company, try to settle your debts yourself. To pay off an account, call your credit card provider. Say that you cannot make your payments and that you want to close the account and pay off the balance with a settlement. Say that if the card company won’t do this, you will default and they may get nothing. Your credit card provider will make you an offer. Your account will be closed and you will be put on a payment plan. You must stick to your payment plan; if you fall behind, your credit card company will re-instate the penalty interest rate, which will be over 20%. But if you stick to the plan you will save yourself the $33,844 in the example above.
If your account has already gone to a collection agency, you may need to make a lump payment to the collection agency before the credit card company will offer you a settlement.
What effect will settling have on your credit score? Closing your own account is not a negative action. The three credit reporting bureaus (TransUnion, Experian, and Equifax) offer credit management advice on their websites. They recommend that you do not cancel several accounts at the same time. Close one account, make your payments, and check your credit score. They recommend that if possible you keep the oldest account active, because the older the account, the more positive weight it has on your credit score. Close newer accounts first. Also, don’t over-consolidate balances onto one card. You are rated according to how much of your available credit you access. If your credit balances are more than 35% of your available limits, your credit score may be negatively affected.
Debt Consolidation
If you need to act quickly because you are facing severe financial difficulties, you may consider a debt consolidation loan or debt management counseling. You may enter into an arrangement whereby you write a check each month to the credit counseling service, and they pay your creditors. The Fair Isaac Corp. (FICO) assures consumers that while a notation may be placed on your credit history, if you pay your debts through a debt consolidation agency or credit-counseling agency your score will not be affected.
By: Beth Stewart
August 8, 2010
Debt Consolidation and Debt Settlement – Understanding the Difference
Whenever the subjects of debt consolidation and debt settlement arise it can be a source of confusion. While the overriding goal of both is the same, to offer debt relief to an individual or business entity, they do in fact entail two entirely different methods for achieving the desired outcome. To clear up any confusion let’s take a look at both of these forms of debt management and define how they differ.
Debt Consolidation
Debt consolidation is when an individual’s debts are combined into one in order to make them more affordable. Let’s say George has five credit cards that he is struggling to make the payments on. A debt consolidation company would negotiate on George’s behalf with each of the credit card issuers to have his interest rates lowered and penalties forgiven.
In addition, instead of making five payments per month to each credit card company there will now be a single payment each month to the debt consolidation company instead which will in turn disperse payments to the individual credit card issuers that are owed money. The payments will be in the amount agreed upon with each issuer.
Now it is important to understand that George will still have to pay back all of the principle that he owes, but because the interest rates were greatly reduced and the penalties forgiven, it will now be affordable for him to be able to do it.
The amount paid out monthly will be worked out so that it is indeed affordable to George. The amount of time it takes for him to become completely debt free is based upon how much the individual can afford to pay each month. Simply stated, debt consolidation gives the consumer a substantial break on interest rates and provides a payment schedule that can be met realistically.
Debt Settlement
Debt settlement happens when an individual consumer or a business enters into an agreed upon solution arrived at through negotiation to repay a portion of the debts they owe to the debtor. Payment can be made in a lump sum or over a period of time depending upon the terms of the agreement.
Let’s use an example to explain this. Robert owes $44,000 on his credit card. He suddenly finds that he is out of work and can no longer afford to make even the minimum payments required. He is already late on his payments and the credit card companies raise interest rates even higher and assess penalty fees.
Robert’s prospects for repaying his credit card debt, for the immediate future at least, are dim. By turning to a reputable debt settlement company they are able to successfully get the $44,000 debt reduced to $24,000 and work out a payment schedule that Robert can realistically meet.
The remaining $20,000 is then forgiven by the credit card company and written off. They are willing to do this because they realize that if they do not work with Robert and negotiate a settlement they more than likely will end up getting nothing because he simply can’t afford to make payments under the current terms.
It is important to understand that debt consolidation and debt settlement are options available to struggling consumers. Choosing which one is right for you is entirely dependent upon your specific financial information so weigh your options carefully. Remember, in order to free yourself from debt you must be proactive. Nothing good will come if you just sit back hoping for the best.
By: Casey Fairchild
July 25, 2010
Debt Consolidation: Do It Yourself
However, if your situation is not so complicated, you can carry out your own debt consolidation process without too many hassles.
If you don’t have too many creditors and different types of loans and credit cards, solving your debt problems doesn’t have to be so complicated. You can save the money a debt consolidation company will charge you and solve your financial difficulties by yourself.
Debt Negotiation
The main part of a debt consolidation program is debt negotiation. What you need to do is to contact the lenders and try to speak with someone who has the ability to decide over your debt. This can usually be done with personnel from administrative or legal departments. Customer Service won’t help you on this matter; just ask them to put you through to the proper department.
Once you’ve contacted the lender, you need to make things clear. You have to state that you are unable to repay your debt under the current terms and that you need to have your debt rescheduled under more advantageous terms in order for them to get their money back. Don’t mean it as a menace, you need to sound concerned, they need to understand that you want to pay but you can’t and that if they are flexible enough they’ll be able to recover their money without entering long and costly legal processes.
Unless the lender holds a real estate guarantee, chances are that they will tailor a new loan with favorable terms so you can retake your monthly payments without sacrifices. If you are convincing enough you can get all the debt created due to punitive fees and interests eliminated and a new loan reschedule to suit your needs.
Get a Loan for Consolidating
Another thing you can do, either instead or after debt negotiation is to obtain a loan for a considerable amount repayable over a long period of time so you can use the money to cancel outstanding debt and end up with a single monthly payment with a lower interest rate. By doing so you’ll get the same results as a debt consolidation company handling your payments. You’ll have a single monthly installment to worry about and you’ll also save thousands of dollars on interests over the whole life of the loan.
Doing this after debt negotiation is better, since you’ll already have reduced your debt substantially after debt negotiation. If you add to that reduction the money you save by exchanging your current debt with a single debt consolidation loan, you’ll really improve your financial situation and you’ll be able to recover from bad credit within a couple of months.
In order to get approved for such a loan you’ll need to hold some equity on your home. This kind of loan can only be obtained by applying for a secured loan. A home loan, a cash out refinance loan and a home equity loan are the options suggested by most debt advisors.
By: Mary Wise
July 23, 2010
Free Government Debt Consolidation – Debt Relief Assistance From the Government
Before the economic crisis hit hard, most lending institutions were very lenient in terms of giving out credit cards and other loans without doing deep background checks. As a result, this has had serious consequences as millions of individuals suddenly found themselves unable to pay these loans back. The high monthly payments in addition to interest rates have left many to resort to government programs for debt consolidation.
If you are faced with the burden of having to pay loans back including credit cards, student loans or medical bills then there are debt relief programs offered by the government. These will help to relieve the financial burden that having several payments can have. In fact, it makes a lot more sense to just have one low monthly payment with an ideal interest rate that you can afford.
Perhaps the biggest advantage with a free government debt consolidation is that you have the opportunity to pay all your debt at once with no collateral. The reason these programs are readily available for struggling individuals is to prevent an economic crisis from occurring again. However, most individuals do not realize that the government allocates billions of dollars a year for such services.
Start by searching online as there are plenty of free websites available to tell you which of these debt relief programs you can be eligible for. Obviously, getting started soon will be more beneficial as you can be on the right path towards paying off all your debt. Simply schedule a free consultation with a local representative in your area so they can have a better overview of your finances and what you need to do pay down your debt.
Bankruptcy should only be used as a last resort so using these government debt relief programs to your advantage is a smart choice. Learning new skills to manage your finances will be hugely beneficial for obvious reasons so that you can learn to save for the future. No matter how bad you think your situation is, it is never too late to take action so you can finally be debt free.
By: Scott Schiller
July 15, 2010
How Much Does Debt Consolidation Cost? What Do Debt Consolidation Companies Charge?
When you think of nonprofit debt consolidation companies, you would probably think they do not charge you anything. This is not the case. They do charge you a fee for their time and services they provide to help you pay off your credit card debt. But just exactly how much does debt consolidation cost?
There are several costs you need to consider when you are thinking about debt consolidation. It’s not just the financial costs. It’s also the time cost. When you consolidate your debts with a consolidation company it can take you up to 60 months or five years to complete the program.
Because every state has different rules and regulations, there is no one set cost that applies to every consumer in every state. So if you live in Idaho you could be paying $25 a month for consolidation services or you could live in Texas and pay $50 a month. These are just examples.
But to give you an idea of how much consolidation costs, you can expect to pay anywhere from $25-$50 a month while you are enrolled in the program.
Another financial cost you will pay when using consolidation is a lower credit score. The credit reporting agencies count a debt management plan as a negative on your credit report. Once you complete the program though, your credit score will start to increase because you have no more credit card debt. This will help you qualify for better rates on mortgages and car loans and even credit cards when you debt free.
Now you know how much debt consolidation can cost you and you are ready to get started consolidating your bills.
By: Adam Tijerina
June 29, 2010
Debt Consolidation – Homeowners Beware
Are you feeling overburdened with debt and finding it hard to meet your monthly payments? If you are, you are not alone.
Consumer debt is higher than it has ever been before, and it has no immediate signs of decreasing either.
We are bombarded with adverts for credit cards and loans, and even if you don’t watch television or read the newspapers, you probably receive mail shots through the post. You cannot get away from it on your pc either, often our inboxes are spammed with advertisements for another great credit card.
Debt is something that is increasingly easier to get into, and according to the equal amount of advertisements for debt consolidation, it is easy enough to get out of.
So what does debt consolidation involve? Generally it is a case of taking out another big loan to pay off all of your smaller debts, therefore giving you only one monthly payment instead of many. Obviously that alone will not see you any better off than you were before, so the loan that you take out should have the benefit of a lower interest rate. Find more information at [http://www.timetoconsolidate.info]
There are many ways to go about debt consolidation. Many homeowners choose to turn their unsecured debt into secured debt against their home, although the interest rate is going to be much lower, this way can carry a large amount of risk. Everybody knows that if you cannot keep up with your monthly repayments you are at risk of losing your home.
Sometimes, debt consolidation companies can discount some of the amount of the loan and also the debt consolidator can buy the loan at a discount if the debtor is in danger of bankruptcy. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be thought about and investigated carefully.
Once you have consolidated your debt, it is important not to carry on living beyond your means otherwise you will end up in a worse predicament than before, possibly leading to bankruptcy.
By: Lucy Bartlett
Debt Consolidation Vs Debt Settlement – What’s the Difference?
Many Credit card users are in dire straits. They are running around to find a solution to their huge card debt. Are you too one of them? If yes go ahead and read on how to eliminate your debt. We will give you some of the best advice on debt relief.
Let us take a look as to how you got into so much of debt in the first place. Ask yourself a question? Did I ever think of paying back debt before I swipe my card? The answer is a sure No. Had you bothered to think about repayment, you would not have landed up in this messy situation. But however now that you are deep down in debt you need to take immediate steps to eliminate it.
Debt consolidation is a good option that most experts suggest. In debt consolidation all your debt is put under one head. If you have five Credit cards and have a huge debt in all the five cards, you can go in for a balance transfer to the credit with the lowest interest. What is will mean is you will be dealing with only one Credit card and making only one payment instead of five different payments. Debt consolidation has great advantages. You could also go in for a consolidation loan and eliminate all Credit debt and pay back the consolidation loan over 2 to 3 years.
Debt settlement is an out of court negotiation with the Credit Company. The company is offered to settle your debt in exchange for the payment of 50 to 60 percent of your outstanding amount. You need to make arrangements to pay up the amount in lump sum. In exchange the Credit card Company will waive the balance of amount. You will be benefited by paying only fraction of the debt that you owe. Your credit will also not be severely dented like bankruptcy.
By: Lisa Archer-Jones
June 21, 2010
Free Government Debt Consolidation – Government Debt Relief to Pay Off Your Debt
Given the current economic situation, it has never been more important to carefully keep track of your finances and how your money is being spent. If you are struggling to make payments on any debt that you have whether it is through student loans, credit cards or even medical bills, then there are free government debt consolidation programs available to help relieve the burden.
What many people do not realize is that billions of dollars go uncollected per year simply because many do not know that such debt relief programs even exist. In fact, such programs are readily available for those individuals who need it as it can help to reduce monthly payments and even lower interest rates. These consolidation loans are definitely an excellent choice if you are struggling to make ends meet.
It makes sense for the government to come out with such debt relief programs since there could be serious economic consequences if millions of individuals suddenly start to default on their loans. This has happened in the past so the government has since provided aid to those who qualify. Perhaps one of the best aspects is that everything is completely free and you would not need to put up any type of collateral.
There are many lending institutions that provide such services but one of the biggest problems is that they may not have your best interest at heart. In fact, many of these services charge fees and some even require collateral like your home in case the loan goes unpaid. Finding a free government debt consolidation program in your area is easier than you think.
All you need to do is simply do a search online and contact a representative in your area to schedule a consultation so they can look over your finances. The purpose of doing this is so that they have a better idea of your finances and how you can be able to pay down your loans. One of the biggest benefits is that such debt relief can help to prevent bankruptcy which should only be used as a last resort.
Even if you do not qualify for such programs, then it might be worth the investment to go with a lending institution that can help you better manage your finances. The benefits of doing so should be fairly obvious as creating a debt free future can help to relieve a great deal of anxiety. Just remember that there is always hope so taking action right away is important especially given the circumstances.
By: Scott Schiller
June 17, 2010
How Do Debt Consolidation Services Work?
How do debt consolidation services work? Considering getting help with your debt? To answer the question, how do debt consolidation services work, we will cover some of the financing principles they use to attack your debt and get you back on track to financial success.
Debt Anxiety Hurts
Frustrating, unhappy, emotional, upset, angry, and despairing are all emotions that accompany the horrors of debt anxiety. Drowning in credit debt, with high interest, high balance loans, credit cards that charge huge fees and payments, and mortgages and car loans that far exceed the value of your principle is depressing. Working day after day, with all your hard earned money going towards fees and payments is probably the worst place you can find yourself.
How Debt Consolidation Services Work to Help
Debt consolidation services understand the pains of carrying overwhelming debt, and they have tools and programs that can help. Like a fingerprint, your debt scenario is unique to your situation, you may have good credit but are nearing collapse. You may have very bad credit and are desperate and have had little success on your own. Debt consolidation services can cater unique programs to best tackle your debt situation.
The most common of these services is to provide debt consolidation loans to help reduce your monthly costs and create a more manageable payment program. Think of these loans as debt refinances, as the service provides a new loan that pays off your high interest short term loans. Your new loan will a much lower interest rate, and a longer payoff term and can commonly reduce your monthly expenses dramatically.
Settle Your Debt
These debt consolidation services also can help you reduce your debt and act as your agent to help negotiate terms to settle your debt for what you owe. If you are very behind on your payments, or have credit lines that are in default and have tons of fees in addition to your original debt, these consolidation services can negotiate to settle your debt for pennies on the dollar. In many cases that can halve or even reduce your debt by up to a third of what you owe!
You are not obligated to use a consolidation service to help you find debt relief. They are paid professionals that deal with difficult situations on a daily basis. So when I am asked how do debt consolidation services work, the best answer is that they are there to help, however they can.
By: Ariel Pryor
June 5, 2010
Debt Consolidation Programs – Are They Legitimate?
Debt consolidation is the process of combining several debts or loans into one new loan and covers all the unsecured debts, like credit cards, medical bills and utility bills. The end result is one monthly payment instead of several. The single payment amount is lower than the total of all payment amounts of the original debts thereby making it easier to meet monthly obligations.
You can take the “do it yourself approach” or sign up with a reputable debt consolidation company. There are pros and cons to each
Using the do it yourself approach involves combining all unsecured debts into one new loan. Usually, to get a lower rate, you need to put up some collateral, such as a home. If you default on a secured loan, you could lose the property you used as collateral.
If you take out a consolidation loan yourself and combine all those debts, you don’t owe less money. You may get a lower interest rate but you still owe the money. That is one disadvantage to do it yourself debt consolidation; you end up paying more money in the long run. You get one monthly payment but you have extended the loan. Consequently you have greatly increased the amount you have to pay as you are paying more interest on the extended consolidated loan.
Alternatively you could learn to negotiate with the creditors yourself to get a lower rate and to stretch out the payments (at a reduced rate).
A respectable debt consolidation company can eliminate accrued interest and finance charges on your behalf. That will significantly lower your outstanding debt. They charge fees for the service but if they reduced your total outstanding debt then you still may save money in the long run.
Finding a legitimate company will take some research on your part. There are many resources online to help you. There are risk and advantages so beware.
After you have found a potential company then write down a list of questions to ask.
Bottom line is debt consolidation can be a legitimate debt solution if used correctly. Be prepared, and beware.
By: Brian Miller
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