Collection Deletion

Know All of the Options

Debt Consolidation vs. Debt Settlement, Bankruptcy, Balance-Transfer Cards

Because of a growing need for debt relief, many options are available on the market today. However, not all may be as beneficial or as reliable as debt consolidation. Alternative options include debt settlement, bankruptcy, balance transfer cards, and pursuing a personal or payday loan. Below are some brief pros and cons of each.

1. Debt Settlement: Debt settlement is negotiating with creditors to reduce your total balance owed. You may feel relieved to pay back far less than you actually charged.

2. Bankruptcy: Bankruptcy can clear individuals of oppressive debt and provide somewhat of a fresh start. This method of debt relief, however, is a major mark on your credit history and is the most damaging option to your credit score. Additionally, a noteworthy amount of bankruptcy filers finds themselves filing a second bankruptcy later because of unchanged behaviors and spending. Bankruptcy also does not resolve student loan debt. For these reasons, bankruptcy should be a last resort.

3. Balance Transfer Cards: Balance transfer cards can offer short-term relief for lesser amounts of debt. By transferring debt (sometimes for a fee) to these credit cards, you can ditch your current high-interest rates for 0% APR for a limited set amount of time. This may provide the time necessary to pay off your debt before you are subject to an interest rate equal to or greater than the one you had hoped to escape.

   Balance transfer cards can help to reduce the amount you would have paid in interest; however, they do not in any way reduce your current balance. They are considered risky since they do not address the cause of your debt accumulation, leave you with an opportunity to charge more debt, and can sometimes require the balance to be paid in full once their initial promotion ends.

4. Refinancing: When refinancing their home, some individuals choose to increase their mortgage loan to cover and pay their credit card debt. It is a high risk since secured debt is being acquired in place of unsecured debt. It can or should only be considered an option if homeowners have more equity in the home than what is owed and if the home still has a positive market value.

Is It Right for You?

Some indicators that you should consider debt consolidation include:

1. Your expenses often exceed your income.
2. You feel reliant on credit cards or payday loans.
3. Your payments toward debt are taking more and more of your monthly budget.

If you are worried your debt is getting out of control and are committed to paying it in full, then taking action sooner rather than later can save you money, time, and hassle. Consolidating your debt may be the best way to do so if you are battling growing balances, have high-interest rates or unmanageable monthly payments, or are frequently contacted by creditors attempting to collect on your debt.

To successfully achieve debt relief through debt consolidation, you must be willing to:

1. Provide necessary documents relating to your debt.
2. Revise current spending habits to create room in your budget for one monthly payment.
3. Cease most credit usage for the length of your repayment plan.

What Should You Do to Stay Out of Debt?

The surest way to eliminate debt on your own is to combine an aggressive repayment strategy with a simplified budget. During your repayment process, it would be best to:

1. Freeze all credit card usage or borrowing. You’ll find it nearly impossible to conquer a balance if you continue to add to it.

2. Track your expenses every month to understand how much money is coming in and where every dollar goes when it leaves your bank account.

3. Consider your purchases and weed out any unnecessary spending.

4. Modify spending on utilities, TV subscriptions, gas or transportation, clothing, groceries, dining out, and entertainment to create room for debt payments.

5. Continue practicing this revised way of living so you can save for medical and financial emergencies and rely less on credit usage and borrowing.

How It Works

Debt consolidation allows a client to pay down multiple accounts owed with one monthly payment. At Debt Reduction Services, clients first meet with a certified credit counselor to better understand their finances and assess their eligibility for a debt repayment program.

1. Repayment feasibility is determined.

2. Negotiations with creditors are pursued by either the client or the credit counseling agency.

3. Counselors and clients discuss a repayment plan.

4. If the client agrees to the terms, they are enrolled in a debt management program (DMP).

5. The client makes one low monthly payment to be distributed to creditors.

6. Repayment is completed in five years or less while clients review financial education materials and webinars provided.