Debt Settlement or Debt Consolidating Loan Which Is Best?

Lately many Us citizens are confronted with mounting credit card loans, high minimum monthly payments and it’s becoming harder and harder to pay our month to month obligations.

As we start to drop behind with our pay back we understand that if don’t take action we could end up in a terrible situation that will be very hard to resolve. There are a number of options/services that can assist you take control of your finance and help you get out/reduce your debt. Here are some of them to get you started on the trail to recovery. First you can persist to do nothing but pay your minimum payments but your debt will continue to rise since you are paying interest on interest in other words there is a compounding affect to your debt, the bigger the debt the larger the interest.

This tends to happen when you only pay minimum repayments but continue to use your card. let’s take an example: you have a new c/card with ten thousand dollars limit and you start using it after the first installment your minimum payment for a $1000 dollar would probably be pretty small no big issue next statement you increase your debt to $3000 and the minimum repayments increase substantially you pay back the minimum repayments and continue to use your card. At the end of the circle you’ve spent your $10k but since you only made minimum repayment, you only paid the interest on the outstanding balance not the principle, now you are left with 10k debt plus interest on your 10k principle debt .As you can see a snow ball effect is taking place here.

When you are late or miss repayments that payment is added to your overall debt and the interest is calculated on the total amount. Continue doing that and your debt will increase in leaps and bounds. The main option you have when you are at this point is some form of debt consolidation. here’s a small piece of information that will give you food for fought.This has been taken from bankrate.com on a 30k debt it will take nearly 60 years to repay your loan and it will cost you over $100K in interest that’s probably not where you want to be .

I’m sure you can find better things to do with our $100k besides paying it as interest to credit card providers. Next option is to try and find debt consolidation loan. Here again you have few options, you can go with a reputable debt consolidation company and they will consolidate your loans into one ,and set up a month to month repayment timetable for you to follow. Your interest rates will in all probability be smaller and the time frame of the loan will be determined according to your financial circumstances.

You will pay the company their costs and on average you should finish paying your debt between 3-7 years. one more option is to use nonprofit companies also known as Consumer Credit Counseling these companies do the same work as paid debt consolidation companies but are getting paid by credit card companies themselves this by itself could cause some conflict of interest since these companies are being paid by your creditors nevertheless it is one option you can explore . A word of warning here while the title says nonprofit not all groups are free of charge so ensure you know upfront what you are getting into. Sadly these programs are not doing to well due to the fact that your credit report has a standing which is comparable to bankruptcy and most people drop after 24 month at best.

Another option is Debt Settlement negotiations. This is a popular program because of its many advantages to customers. Debt Settlement Firms are professionals at negotiating your debt down, on average all debts are reduce from 40% to 70% of what you owe basedon who your lenders are. Once you signed with a debt settlement firm you can direct all your creditors to work directly with them. Like any debt consolidation plan you will have to pay a monthly repayment into a trust fund that will pay back your debt. The negatives as you will probably think is the firm’s premiums unlike the CCC that get paid by credit card companies these debt management firms charge somewhere between15-20% so on a 30k debt you can anticipate to pay around $5k in fees but if you where to put aside 40-50% of your debt you still save around $10k after fees. Turnaround time to complete your loan is also much shorter from 12-36 months Most likely one of the most important benefits is that all through this time, the creditors will be reporting late pays on your credit report while you are paying your debt. As settlements are reached with each creditor, the creditors will report a “settled in full “or “paid with a zero balance.” So, ultimately, at the end of the program, your debt to income ratio will have improved and your credit will begin to fix itself for the future.