Is Consolidating a Good Thing?
Paying off everything we owe on our own is the preferable way to handle debt. But sometimes that's easier said than done. Our circumstances often change, making it impossible to even make our minimum monthly payments.
When that happens one avenue of relief is to consolidate your debt. There are many ways that this can be done such as balance transfers from many high interest credit cards to one low rate card or a debt consolidation loan or second mortgage. Another option to seek help from a debt consolidation agency.
What can Credit Counselors Do?
A credit counselor will review the debtor's situation and propose a payment plan that is reasonable for debtor and acceptable for the creditor. The debtor pays a monthly payment to the agency and the creditors receive their agreed upon amounts from the agency.
The pros
Debt consolidation agencies can sometimes get your interest rates lowered, stop late fees and penalties from mounting and come up with a repayment plan that will work with your budget.
Not Always a Win Win Situation
There are some obstacles that may be hard to overcome. While credit counselors work hard to negotiate with your creditors they are not miracle workers. The creditors expect to be repaid and they are only going to compromise to a point. If you are really in way over your head the negotiated figures may still be a lot more than you can handle. If that is the case debt consolidation will not work for you.
Another thing about credit counseling is that it isn't free. Credit counseling agencies may charge monthly fees for their services, adding them on to your monthly payment. If they don't, they have to get the money to pay their employees somewhere. That "somewhere" is usually from your debtors, as a percentage of your payment.
There is also the negative effects that credit counseling has on your credit scores. This is reported to the credit reporting agencies and it shows on your report until you have paid off the debt and then for some time after that. The system is very similar to filing Chapter 13 bankruptcy where an agreed upon payment plan is established. Many creditors view it as the same and are hesitant to extend credit to someone who has been through credit counseling.
When that happens one avenue of relief is to consolidate your debt. There are many ways that this can be done such as balance transfers from many high interest credit cards to one low rate card or a debt consolidation loan or second mortgage. Another option to seek help from a debt consolidation agency.
What can Credit Counselors Do?
A credit counselor will review the debtor's situation and propose a payment plan that is reasonable for debtor and acceptable for the creditor. The debtor pays a monthly payment to the agency and the creditors receive their agreed upon amounts from the agency.
The pros
Debt consolidation agencies can sometimes get your interest rates lowered, stop late fees and penalties from mounting and come up with a repayment plan that will work with your budget.
Not Always a Win Win Situation
There are some obstacles that may be hard to overcome. While credit counselors work hard to negotiate with your creditors they are not miracle workers. The creditors expect to be repaid and they are only going to compromise to a point. If you are really in way over your head the negotiated figures may still be a lot more than you can handle. If that is the case debt consolidation will not work for you.
Another thing about credit counseling is that it isn't free. Credit counseling agencies may charge monthly fees for their services, adding them on to your monthly payment. If they don't, they have to get the money to pay their employees somewhere. That "somewhere" is usually from your debtors, as a percentage of your payment.
There is also the negative effects that credit counseling has on your credit scores. This is reported to the credit reporting agencies and it shows on your report until you have paid off the debt and then for some time after that. The system is very similar to filing Chapter 13 bankruptcy where an agreed upon payment plan is established. Many creditors view it as the same and are hesitant to extend credit to someone who has been through credit counseling.
About the Author:
Tire of struggling to keep up with your credit card debt? Learn some simple methods of how to pay off credit cards faster on the Debtopedia website. Get a free copy of my report "Secrets Of Credit Card Debt" at http://www.debtopedia.com
posted by Credit Counseling at
12:14 PM
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