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Learn Why
Debt Relief
Is A Great Option

Learn Why
Debt Relief
Is A Great Option

When you have credit card debt, you’ll find there are many companies that offer a wide range of options geared toward helping you with your debt. It can be difficult to determine which option is the right one for you. Below we’ve outlined the four main types of debt-relief services you’re likely to come across.

Debt Counseling

Debt Counselors advise you on your debts, help you budget, and provide money management seminars.

Debt Management

With Debt Management, you follow a pre-agreed upon payment plan and timeline to pay off creditors.

Debt Consolidation

Debt Consolidation combines all of your debt into one loan. This typically requires a higher credit score to be approved.

Debt Settlement

With Debt Settlement, your debt is negotiated down and you pay less than you owe.

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DEBT COUNSELING

When you’re struggling to keep up with all your bills, Debt Counselors advise you on your debts, maintaining a budget with your current income and provide money management seminars.

Debt Counseling (sometimes called Credit Counseling) is when you work with a professional advisor for guidance on how to set budgets, manage personal finances, repay debts, and repair credit.

Often this takes place via one-on-one sessions that are customized to your situation. Counselors will review all the financial information you provide, help set a budget that considers your income and expenses, and set up payment plans for each of your debts owed.

Additionally, Debt Counselors sometimes have pre-negotiated interest rates with various creditors that their clients can benefit from. However, despite lower interest rates, Debt Counseling does not reduce the total amount of debt you must pay back. They simply provide tools that can make paying back your debts more manageable.

It’s important to note that when you work with a Debt Counselor, your current credit card accounts will likely be closed to new charges, and you will be expected to avoid opening new credit cards or taking on additional debt while in the program.

If you’re struggling to make minimum payments, or are relying heavily on the use of credit cards to get by each month, Debt Counseling might not be the best choice for you. 

 

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DEBT MANAGEMENT

Debt Management is one way to pay off your unsecured debt with creditors over a specific period of time. Your debt amount does not change, you’re simply granted an extension with a pre-agreed upon payment plan.

A Debt Management Plan, sometimes referred to as a Debt Management Program (DMP) provides specific instruction on how to successfully manage your current debt load. A DMP is designed to help you pay off multiple creditors with one monthly payment.

To set up a DMP, a Debt Counselor reviews the financial information you provide, helps you create a budget, and schedules a debt repayment plan. In some cases you can get a lower interest rate if the Debt Counselor you are working with has pre-negotiated agreements in place with your creditors, but a Debt Management Plan does not reduce the total amount of debt owed. Additionally, enrollment usually includes an upfront fee.

A DMP could help you avoid becoming delinquent and prevent creditor collection calls and letters from starting. It might be an option to consider if you can currently afford your minimum monthly payments or if your debt balances aren’t too large. But, if you’re struggling to make your minimum payments or worry that you’ll have to pay even more each month due to fees and interest, a Debt Management Plan might not be the best choice for you.

Man Struggling with Credit Card Debt

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DEBT CONSOLIDATION

Consolidating is a type of debt refinancing. Instead of having multiple debts to pay off in multiple places, debt consolidation loans offer you one loan to pay off many others. Typically, debt consolidation loans require a higher credit score to be approved.

With Debt Consolidation, you consolidate payments to multiple creditors into one monthly payment by taking out a debt consolidation loan or a personal loan. You can then use the loan to pay off your current creditors and begin making a single monthly payment to the new lender.

Making one payment can be more convenient and could save you money in the long run if the interest rates remain lower than what you were previously paying. However, if the rates are a variable APR rather than fixed, they could rise significantly over the course of the loan and with a larger overall balance, that can equal a big difference.

You should also know that some loans require collateral. If your debt is comprised of mostly credit card debt and medical bills, this would then turn these unsecured debts into secured debts. Secured debts cannot be settled for less, and if you fail to repay on time and in full, you could lose whatever collateral you put up for the loan. If you don’t have collateral such as a home or car, some lenders will offer an unsecured loan. Those loans typically have higher interest rates. A high interest rate on a large amount of debt can add up very quickly and total in the tens of thousands of dollars over time.

If you’re already struggling to make your minimum payments or worry that you’ll have to pay even more over the life of the loan, Debt Consolidation is not likely to be the best choice for you.

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DEBT SETTLEMENT

When you’re struggling with high interest credit card or other unsecured debts, Debt Settlement might allow you to pay off your debt sooner for a fraction of what you owe.

Debt Settlement companies offer programs that help you settle your debt for less than your outstanding balance. With these programs, participants make monthly deposits into a savings account. Once enough money accumulates, this account is used to negotiate lower settlements with creditors. This is done one account at a time until each one is settled and all debts are cleared.

Because Debt Settlement companies are negotiating with creditors to settle for less than you owe, the timeline to get debt-free is much faster than with other options, typically only 24-36 months.

One limitation for Debt Settlement is that it is not a solution for secured debts such as a mortgage, auto loan or home equity loan. Since these debts are secured by collateral, creditors will not be willing to settle your balance for less. If you are struggling with secured debts, other options such as Debt Consolidation or Debt Counseling might be best.

The CreditAssociates team has been a leader in the Debt Settlement business for 14 years. In that time, we have helped tens of thousands of people become debt-free and press the reset button on their financial future. If Debt Settlement sounds like it could be the right solution for you, request a free consultation today.

SEE HOW MUCH YOU COULD SAVE

See How Much You Could Save

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Total Debt Amount:
|
New Monthly Payment:
$445
Estimated Settlement:
$16,000
Total Savings:
$16,000

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