Credit Card Debt Consolidation
Many individuals and families living in Massachusetts are struggling with credit cards and other unsecured debts. As a result, many consumers are looking for debt relief that could not only provide much-needed relief, but possibly save a considerable amount of money each month. The main purpose of a debt consolidation program is to combine or "consolidate" all of your high-interest unsecured debts into one, more affordable monthly payment made to a debt consolidation company. The debt consolidation, or credit counseling organization, then has the task of paying each one of your creditors on time until all debts in the program are paid off, or resolved. Before we go into the details of how a debt consolidation debt relief program works, it's important to understand how a credit card debt consolidation debt relief program differs from a debt consolidation loan.
Comparing Debt Consolidation with a Debt Consolidation Loan
As a debt relief option, debt consolidation and a standard debt consolidation loan both have some common goals, most of all they both may help to provide relief from high interest debts. What is quite different, however, is the method of getting relief. In the case of a debt consolidation or debt management plan (DMP) coordinated by a credit or debt counselor, the objective is to gain an understanding of the debt load a consumer is facing and the amount of money that can actually be set aside each month to pay off or pay down debts. Then a personalized plan is designed that "consolidates" multiple high interest consumer debts into a single, more affordable, payment each month. These plans can, ideally, help consumers resolve debts at a pace - and with a lower monthly payment - they can more easily afford.
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Next, let's look at a debt consolidation loan, which may involve paying off multiple high interest credit cards and other debts with the proceeds from a debt consolidation loan. Upon first glance, a debt consolidation loan makes perfect sense in that it can "convert" multiple high-interest debts into one lower interest rate loan. However, it should be noted that Massachusetts residents seeking approval for debt consolidation loans are typically required to use a home or other asset as collateral. That means that if consumers who are already struggling with debts hit upon hard times financially, they could be putting their home or other asset at risk. The bottom line: A debt consolidation loan, while beneficial at times for many people, may be a risky loan that turns "unsecured" debt that doesn't put one's home at risk into a "secured" debt that does. Furthermore, unless credit is strong or even excellent, it is likely that the debt consolidation loan may carry a fairly high interest rate, which can defeat the main purpose of the loan in the first place.
Moreover, many consumers who pay off credit cards with the proceeds from a debt consolidation loan end up quickly amassing credit card debts yet again. This leaves consumers with BOTH a debt consolidation loan and multiple high interest credit cards to deal with. Now the situation has gone from bad to worse and the cycle of debt continues.
How Debt Consolidation Works
A debt consolidation program, also known as a debt management program (DMP), is intended to combine or consolidate multiple high-interest consumer debts into a single, more affordable monthly payment. Through the benefits of debt relief, such as lower and more lenient interest rates and the waiving of late fees and penalties, a debt management plan coordinated by a debt counselor or credit counselor can provide much-needed relief for consumers who are looking for a reliable, predictable and structured route out of debt.
How does a credit counselor (or debt counselor) customize plans for each debtor? To start, they will typically interview consumers in order to get a clear understanding of all of their debts. Then they will conduct a budget analysis with consumers to find out how much money can be realistically allocated each month to pay down those debts. Finally, based on this information they will come up with a strategy (a debt management plan or DMP) and send proposals to each of the consumer's creditors requesting the benefits of debt relief on behalf of the individual or family experiencing financial hardship. These benefits can include lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who agree to the proposals are then added to the debt management plan. For those that do not, consumers are still obligated with creditors according to the terms of their original agreements. Overall, debt consolidation or debt management plans can be very effective and save a substantial amount of money if consumers 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.
A debt consolidation or debt management plan may help you resolve debts at an accelerated pace, while still saving money. Find out more by requesting Your Free Debt Relief Evaluation and Savings Estimate.
State Financial Assistance
Massachusetts's state government does not offer debt grants or programs to help consumers resolve their debts. However, for individuals and families who are low-income or need some extra support during difficult circumstances, the state does provide a variety of programs. One such program is the Temporary Assistance Program. The TAP provides assistance to needy families with children, helping them get access to food, health care, and other basic necessities. Massachusetts also has agencies that can assist with housing concerns and help consumers avoid foreclosure.
To learn more about these resources and more, go to the state's homepage Benefits section.
Comparing Debt Consolidation with Debt Settlement
Many individuals have experienced debt relief through credit counseling, but consumers need to be aware of its challenges. For example, debt management requires discipline and a large amount of restraint to avoid relying on credit cards. Also, it typically takes three to five years to complete the program and take advantage of all the money saving benefits of debt relief, benefits like lower interest rates and more reasonable repayment terms.
If you are looking for an alternative to debt management, another popular debt relief option is debt settlement or debt negotiation. Debt settlement is looked at as a more aggressive form of debt relief that is designed to help consumers in distress with high balance credit cards, and possibly even facing the prospects of bankruptcy. Consumers seeking debt relief through a negotiated settlement need to be aware that they must first accumulate money in a designated account that can later be used as the funding source to reach a settlement with individual creditors.
Why would credit card companies consider settling for less than the full amount with cardholders? It is common practice for credit card companies to eventually "sell off" debt that is 60-90 days or more in arrears as "bad debt" to a collection agency. for as little as ten cents on the dollar. Under those circumstances, it stands to reason that credit card companies may be willing to accept a reasonable settlement offer made by you or by a debt settlement company negotiating on your behalf. It is important to recognize that monies saved through credit card settlements, which can be quite substantial, are subject to federal taxation. In addition, when consumers default on their credit card agreements in order to set aside money in a settlement fund, creditors may threaten or take legal action in order to discourage consumers from pursuing this course of action. Finally, debt settlement will typically have a negative impact on personal credit, but not be as serious or long lasting of an impact as personal bankruptcy.
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