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Credit Alliance Group compares Debt Consolidation vs. Debt Management vs. Debt Settlement

Guest post by: Bryan Garner

Article Overview: The average American household has 20-30K of unsecured debt. Our economy as a whole is drowning in credit card debt, medical bills, personal loans, and just unsecured debt in general. In order to get out from underneath this huge burden of bills and those harassing creditor calls we have resorted to finding debt relief options such as Debt Consolidation Loans, Debt Management Programs, and your array of Debt Settlement Companies. I’m in shock to see the countless amounts of people that look for these different options and not put the time and energy into researching the cause and effects that it has on your credit score, credit report, and your financial future. By the time you have read through this article I hope you have a better understanding of the pros and cons of each of the different debt relief choices available.

Credit Alliance Group compares Debt Consolidation vs. Debt Management vs. Debt Settlement

Debt Consolidation:

The average American household has 20-30K of unsecured debt. Our economy as a whole is drowning in credit card debt, medical bills, personal loans, and just unsecured debt in general. In order to get out from underneath this huge burden of bills and those harassing creditor calls we have resorted to finding debt relief options such as Debt Consolidation Loans, Debt Management Programs, and your array of Debt Settlement Companies. I'm in shock to see the countless amounts of people that look for these different options and not put the time and energy into researching the cause and effects that it has on your credit score, credit report, and your financial future. By the time you have read through this article I hope you have a better understanding of the pros and cons of each of the different debt relief choices available.

Debt Consolidation consist of going to your local bank and trying to get another loan that will pay off all of your bills and consolidate your payments in to a more feasible payment in your eyes. Debt Consolidation Loans feed off of the habits that put you into debt in the first place; by taking on yet another creditor that advertising those low interest rates that generally are directed towards the people with superb credit ratings. Make sure you calculate your interest and fees on all your prior accounts to determine the total of the payments you now make. Then compare those amounts with the Debt Consolidation Loan figures to verify that you are making the best choice possible.

Some of the most popular forms of debt consolidation include a home equity loan or line of credit and zero-percent credit card. Home equity line of credit is generally thought of as a quick fix to debt consolidation. The biggest risk is that you could lose your home if you default on the loan; you are practically trading the roof over your family's head for your unsecured debt. All it takes is one rainy day in your financial forecast that can turn your "quick fix" into a financial nightmare. However, a home equity loan can still work for some of you; however it should be given your complete consideration. Do your homework and compare your options; use this formula to try and make sense out of borrowing against your home's equity. (Equity = home value - (mortgage balance + other liens or home loans))

The Zero-percent credit card route is another possibility in your debt consolidation plans for knocking out some of your debt. The majority of the credit card companies aim for consumers with good credit, which leaves the rest of you who are drowning in debt without this as a debt consolidation alternative. Keep in mind that you have to qualify for the low percentage rate and it doesn't last the life of the card. Ensure you are aware of when the low interest rate is expected to spiral back up and the percentage it will rise to. The best way to conquer this financial move is through payment discipline and transferring balances at key times. However, the more accounts that you have to open to keep the low interest rates; the more adverse it will affect your credit score. Transferring balances in this manner is like playing with fire; if your not extremely cautious then you're liable to be burned.

Debt Management:

Debt Management Programs were created back in the early 80's and was built upon the idea of providing a way for consumer's to repay their debts in full. However, the so called "Credit Counseling Agencies" that provide these types of services are owned by the creditors and banks who issue the credit cards to you. So now these so called "Non-Profit Organizations" are providing services to consumers creating an impression that these services are being provided to them without the consumer contributing to the companies' profit.

However, let's get back to reality; nothing is done for free in this world. So how are they getting paid? I'm about to get to that, but first lets recap. You enrolled into this Credit Counseling Service that is going to negotiate your interest rates, put you under one low monthly payment and get you completely debt free again. In theory yes; that is exactly what they will do for you, but shouldn't you do the research and educate yourself on the "Big Picture" first.

As I stated earlier these companies have to make money to stay in business. You pay this "Credit Counseling Service" one payment a month and they distribute that payment to your creditors for the new payment amount they have negotiated it down to. When in fact, your creditors are paying these companies a 15% cut off of the thousand more in interest they are about to make off of you. You just extended your payments and lowered your interest and SURE the credit card companies are willing to go for this. Simply because they are going to reap all the benefits off of a program like this. I will show you an example here in just a second. All they have done is lowered your interest rates and extended your monthly payments to 60 months; that is five years in simple math terms.

Now here is your example that should help you "paint the picture".

You have a total unsecured debt of $20,000.00 and let's say you had an average interest rate of 18%. They put you in a monthly payment of about $570 a month and you were paying around $600, so right off the bat your thinking good thoughts. Wake up ladies and gentlemen, this is not good thoughts. You will end up paying a grand total of $34,200.00, $14,200.00 in interest alone and it will take you 5 years to pay this off. Now of course this is better than what you were doing-simply paying the minimum monthly payments-but still not the best decision. Granted your credit score is already not in good shape because who do you know that has good credit with an interest rate in the double digits? Not many; so therefore you know your credit score isn't the greatest but why completely destroy it? These companies show up as a third party intervention on your credit report and make you enroll all of your debt. Which this screams to future lenders that you had to consult with a third party company in order to pay your bills on time each month and now the likely hood of you being able to refinance your home or purchase another vehicle has just been shot. You might as well write a country song about your debt situation because it just went from bad to worse with this option.

Debt Settlement

Finally, we come to your Debt Settlement Option that allures so many of us. All we tend to hear and see online is the commercials and email blast of saving us up to 60% of our total debts, consolidating our bills into one low monthly payment, and stopping those harassing collection calls. Debt Settlement Programs really started churning around the early 90's and were given a bad reputation due to the many unethical, greedy officers and CEO's of these companies. However, there are some out there that are legitimate, ethical, and fair companies.

In order to find a Debt Settlement Company, you will need to shop around. I don't know about you but I don't go to the first car lot and buy a vehicle. No, no, no, we shop around, that's what American's do best anyways right? You need to see what type of benefits they offering you, how much they are charging to negotiate your debts, how long have they been in business, how many complaints they have with the Better Business Bureau, and what kind of D&B Rating do they have? Don't just take the word of the person on the other end of the phone either, research it yourself. Your just checking to see how comfortable and honest they are answering your questions that way when you do the research you can verify his/her information with what you found out. That will also tell you the moral fiber and character of the type of personnel employed at that company. And who wants to do business with unethical people? Not me!

Once you have finished your research and have your options narrowed down. Let's start to compare the pros and cons between each company. How are they going to stop the collection calls? Are they just simply telling you to write down the name and number and call them with the information; or are they sending you a home phone module that stops the harassing calls and redirects the call to their office. Without a module to redirect, track and log the calls then you are going to be helpless when it comes to creditors harassing you and NO MATTER what the company tells you; it will take months to get them to stop without a module like this. Hint: This module is what you will need and want.

When it comes to the Federal Trade Commission (FTC) it will take good, solid, complaints in order to make sure that collection company or creditor is going to be reprimanded for being in violation of the Fair Debt Collection Practices Act (FDCPA) and that is what this module does for you and the company that is trying to help you. If you don't believe me, enroll into a program without a module like this and experience the calls first hand, then enroll in a program with the module and you will have thought you died and went to heaven.

Now are they charging you an upfront fee to get things started? If not how do their fees work within your monthly payment? Are they split half and half or are you paying a few payments of fees first then half and half? Find this out; you will need to know how fast your money will start working for you. Do they penalize you for paying in extra or trying to pay it off faster? If they don't, do you know how to make their system work for you? For example, if they are offering programs that run from 6-36 months and you can afford the 18 month plan. Why not go with the 36 month plan and send in the difference of the two program options each month.

That way you will be building up your Escrow Savings Account at a quicker rate and see your money start working for you faster-"More bang for your buck".

The only catch to utilizing this loop hole is that you have to be responsible and discipline enough to send it that extra amount each month, because if you chose any program with any company over 36 months then you're increasing your chances of being sued by your creditor. Ensure you look up the Statute of Limitations for revolving debt in your state. It should be a minimum of three and a maximum of five years in all 50 states.

What this means to you is that if you reach that three to five year mark and that debt is not paid off yet then that creditor is more than likely going to take you to court to get the monies owed. For starters, a summons can be filed against you; and once you appear in court a judgment can be put in place to garnish your wages, put a lean on your home, or even foreclose on your mortgage completely. This happens every single day to people out there that are making the minimal effort towards taking care of their debt. Don't let this happen to you and be pro-active and ensure you are making every possible effort to eliminate your debts.

Next, find out what type of qualifications are required for the negotiators who are going to be negotiating your debt. What are the general statistics and history of settlements within the company?

Finally, do you understand how it all works? You will be saving funds into an Escrow Savings Account that will be kept in trust by the company at a FDIC Insured Bank. Once you have accumulated enough funds to present a settlement offer to your first creditor (usually the smallest debt first). Then the negotiations process will begin. Understand that getting out of debt is process and it will take time. If you are looking for those 40% settlements then I hope you also understand that you will have to wait until they are sold to a third party collection agency in order to receive settlements that low. This is your best bet by the way.

Your original creditor holds on to your debt for 180 days of non-payment and then is able to write it off as bad debt per tax reasons and sell it for around 20 cents on the dollar. The collection company will in return settle it for 40 cents on the dollar (if the negotiators are good enough). Simply because they are too greedy not to accept it and the fact that they haven't received any form of payment in over 180 days plays are large role as well.

Billions of dollars each year are settled through Debt Settlement Companies and your creditors can't afford to lose out on a billion dollar a year business, which gives these Debt Settlement Companies a so called "Wal-Mart" affect.

In conclusion, all of your debt relief options will affect your credit score in one way or another. We have a saying in the Marine Corps that goes: "Doing something is better than doing nothing." That saying holds true here as well. If you do nothing then, yes, you will keep that pretty credit score-for a while- and pay out thousands over the next 20+ years it will take you to pay it off. What good is a credit score if it does nothing for you? You have to take some type of action and be pro-active in order to get out from underneath the wrenching cycle of paying nothing but the interest each month. It will continue to be overwhelming and eventually you will damage your credit score beyond recovery by not taking responsibility for your debt and speaking with someone soon.

Related Articles
  Is Debt Settlement the RIGHT choice for you?
  How Will Debt Settlement Affect my Credit
  How Does Debt Settlement Affect My Credit?
  Credit Alliance Group is changing the debt settlement industry
  An outlook on the future of Debt Consolidation Companies

Article Tags: credit alliance group, credit card debt, debt consolidation loans, debt management programs, debt settlement companies
Referred by: http://www.creditalliancegroup.net



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