Whenever you are spending using a credit card, it is plastic money. As you can’t see any real money leaving, it becomes difficult to gauge the amount spent. Due to this, over a period of time debts may get piled up and many don’t know how to deal with it. An option that you can consider to deal with huge credit card debts is debt consolidation. If you’re currently paying high-interest on multiple accounts, things like credit cards, medical bills or any additional unsecured debts; debt consolidation is probably a smart option for you. Reduced interest rates may allow you to minimize your overall payments.

When debts are accumulated in huge amount, there are various debt consolidation options that are available for debt relief. They are debt negotiation, debt settlement, and debt consolidation loans. Though they are different in concept they are related and each one has serious implications on one’s finances. Most companies who advertise themselves as debt relief providers actually offer a debt consolidation service, a debt negotiation service, debt consolidation loans, debt settlements or a combination of two or more of them.

Debt negotiation is the process of negotiating with your creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that’s significantly lower than the total balance. If your only other option is bankruptcy, your creditors may be willing to negotiate with you to ensure that they get something rather than nothing. Debt negotiation can be done by an individual or a debt negotiation company. These companies have expert negotiators that can obtain the creditor commitment of having the debt fully paid after negotiation so your credit report will not be affected negatively. However, during the process your credit score may be affected.

Debt settlement promises to reduce your debt by negotiating with your creditors, but the effect on your credit isn’t explained so clearly. Debt settlement has two possible meanings: It can refer, as debt negotiation, to the process of agreeing with creditors new repayment programs or it can imply some sort of legal settlement. This means that if to some extent your debt problem has become a legal problem, a debt settlement company (usually a law firm or a company with expert lawyers) will be able to reach an agreement with the creditors and take your debt problem out of court.

A debt consolidation loan is a loan you get to pay off multiple loans or lines of credit. Debt consolidation loans are useful when you have varying amounts of debt on varying items (car loan, credit cards, medical bills, etc.). The idea is to get a loan at a fixed and low interest rate to pay off your varying debts. It typically lessens the total amount of money you end up paying. This loan is like second mortgage as it is obtained against collateral. In the event of non-payment you might risk losing that asset to foreclosure.

Many debt companies and private financial institutions offer credit counseling as a type of financial planning. Counseling can help figure out how much debt is owed and how to control debt in the future. Although it might seem odd to pay a fee to save money, experienced debt negotiators may be able to save you far more than the cost of their fee. They know which creditors are willing to negotiate and how much of a settlement they will accept. Due to their network of relationships, they can settle debts you couldn’t on your own.

It is advisable that you research these debt consolidation options and identify the one which suits your financial circumstances.

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Category: Finances
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