These companies work with consumers to restructure their existing debts with two goals in mind: 1) simply the consumer’s monthly payments by reducing the total number of creditors and 2) reduce the consumer’s monthly payments by lowering interest rates through a consolidation of debts, credit counseling, debt settlement for portions of the total amount owed, or extending the overall repayment term of the outstanding debts with a debt consolidation loan. Some of these related forms of debt help have directory pages on this web site:
- Debt Consolidation Companies – Listings of companies that offer the consolidation of credit card bills, credit counseling and debt consolidation loans to businesses and individuals.
- Credit Counseling – Need help from a credit counselor? Find web site listings of non-profit credit counseling firms from the Open Directory Project (ODP).
- Debt Consolidation – Do you simply have too many credit cards and other bills? Review this directory for useful information and compare a list of service providers that may be able to help you.
- Bankruptcy Alternatives – With the new laws enacted in 2005, certain requirements must be met before a consumer can file for bankruptcy. Fortunately, there are several available alternatives.
Additional Debt Management Information:
To address each of the goals of managing debt in turn, most debt management companies reduce the total number of creditors for consumers either by refinancing multiple creditor’s debt into a single consolidation loan or smaller number of loans, or by receiving payments from the consumer and remitting those payments on the consumer’s behalf to the creditors (thus making managing bills easier for the consumer, even though nothing has changed). Some debt management companies even set up payroll deductions for the consumer so that they never even have to be concerned with making the required payments to the program.
Most consumers go into this process with the goal of reducing their minimum monthly payments and there are three ways that this can generally be accomplished.
1. Firstly, programs may be able to reduce interest rates on debt either through negotiation with present creditors, the refinancing of debt to new creditors on with more favorable terms or rates, or the consolidation of higher rate bills into some form of lower interest rate form of debt, like a debt consolidation loan. In the case of loans, a few good examples are the use of a home equity loan or a personal loan (shop personal loans at DebtConsolidationLoan.com) to consolidate high rate credit card bills. In the case of home equity mortgage financing (find home equity loan providers), your unsecured debts can consolidated to secured real property. The rate on your outstanding debt can drop considerably, because in the event of default the lender has the borrower’s (you) home to look to as collateral. An additional benefit you may receive, could come in the form of a tax deduction for the interest you pay on the equity loan. You usually do not get this benefit with unsecured bills (save student loans). However, you should consult a CPA or tax advisor to find out if you will qualify. WARNING: Using your house as collateral to consolidate debt is a risk that should not be taken lightly. Be sure to review all of your options thoroughly before taking this course action. If you decide on taking out a consolidation loan, keep in mind that a personal loan may be a good alternative option. The interest rate will most likely be higher, but these loans are typically unsecured, which means you home will not be at stake if you miss payments and your loan goes into default.
2. Another major tool of debt management programs is negotiation with creditors. Programs will frequently negotiate with creditors to achieve a settlement which is less than 100% of the total balance (for example: settling for $0.30 or $0.40 on the dollar). This can even be done when the settlement itself is part of a refinancing. In this case, even if the interest rate remains constant, since the principal has decreased the monthly payment will generally decrease.
3. Finally, the largest tool of credit management is to extend the life of debts. Debt management programs frequently refinance short term bills into medium or longer terms of repayment. Extending a credit card balance, that will be paid in 100 months (most credit cards are required by law to have a minimum payment of at least 1% of the total amount due) or 8.3 years into a 20 or 30 year mortgage loan lowers the monthly payment obligation because the amount of principal included in each payment is dramatically reduced; however, the consumer stays in debt for a much longer period. WARNING: Once again, keep in mind that using your house as security for a debt consolidation is a risk that should not be entered into without serious consideration. Be sure to review our consumer information section and make a thorough evaluation of all of your options before making a decision.
Looking for debt consolidation help or credit counseling programs in a particular state?
- What if I Can’t Pay My Bills? – Making timely payments on your debt is always the most important thing you can do to ensure you keep a good credit rating. However, if you fall behind, there are some things you should consider doing immediately.