Debt consolidation loans may be the first choice for consumer debt relief but read on to discover why it may not work for everyone. Consumer demand remains weak, forcing many businesses to cut labor costs and raise prices in an effort to remain profitable. If you’ve been lucky enough to escape from the recent economic carnage with your job intact, you’ve probably seen your wages decline relative to the cost of staples like food and fuel. Some economists expect this worrisome trend to continue for years. Thus the need for debt relief services like debt consolidation.
Of course, tough times can strike without warning. The current economic climate may eventually improve, but that doesn’t mean that you’ll be immune from financial stresses in the future. On the contrary, good times have a tendency to produce a false sense of security that encourages poor financial decision-making.
If you’re like many frustrated Americans, you may feel like there’s no more fat to cut from your budget. Forced by necessity to make decisions that would have been unthinkable in the past, you may already have taken out substantial amounts of debt just to keep current with your everyday expenses.
Depending on the severity of your situation, you may be close to exhausting your traditional credit options and now are looking for debt relief plans like debt consolidation, debt settlement and even bankruptcy. Once you’ve maxed out your existing credit cards and overdrawn your personal lines of credit, more expensive and dangerous forms of credit will become increasingly appealing.
Don’t succumb to the easy-money temptations of payday loans and other “fast-cash” credit options. Once you begin using payday loans to bridge your income gap, you’ll find it difficult to pull out of an increasingly expensive cycle of late fees and interest charges. Debt consolidation loans will not be available as your credit score deteriorates.
Instead, consider taking constructive action to consolidate your debts and begin rebuilding your credit. Many consumers think debt consolidation is the only answer. But, if you’re serious about fixing your debt problems, you have several options at your disposal: Debt consolidation loans, credit counseling, bankruptcy and debt settlement. Each requires the involvement of a professional and takes time to complete.
Before you get a third party involved, you may wish to try to manage your debt load on your own. To pay down your debts in a meaningful way, you’ll have to do more than just make the minimum payments on each of your outstanding obligations and hope for an increase in your income stream down the line.
Instead, you’ll need to approach your predicament with discipline and fortitude. First, stop using the bulk of your credit cards. This may be tough, so hide them somewhere safe but inaccessible. Keep just one card on hand for emergencies that are too expensive to cover with pocket cash.
Next, order your credit cards, personal credit lines, business loans and other debts by their effective interest rates. Set your sights on your most expensive obligation and begin using all of your disposable income to pay down its balance each month. While your other balances will continue to expand during this process, their growth will be limited by the fact that you’re not adding to them with new charges.
Once you’ve zeroed out the balance on your most expensive card or loan, move on to your second-most expensive obligation and apply the same tactics. Repeat this process until you’ve paid off your least expensive card.
While this “self-help” method of debt relief has worked for countless Americans, it may not be appropriate for your particular situation. If you’ve tried paying down your debts one at a time and still can’t seem to shake your creditors, consider taking out a debt consolidation loan for your debt relief plan.
You can obtain a debt consolidation loan through either a traditional bank or niche provider. It provides you with enough up-front cash to pay off your existing creditors in full, effectively replacing your multiple outstanding obligations with a single easy-to-understand credit product. But you also need to keep in mind that to qualify for a debt consolidation loan you need an excellent credit score.
Although every case is different, debt consolidation loans may slash your interest rates by up to 50 percent. That’s not insignificant: You’d save $1,000 per year by reducing the interest rate on your $10,000 credit balance from 20 percent to 10 percent. This qualifies as debt relief but is it enough?
However, debt consolidation loans may take five or more years to pay off. In the meantime, you’ll continue to accrue interest on your new loan balance. This is why debt consolidation may not be the best way to reduce debt. It’s not a fast debt relief plan.
Like debt consolidation loans, credit counseling may dramatically reduce your current interest rates. Credit counselors take a hands-on approach to debt relief, negotiating directly with your creditors to lower your interest rates and broaden your repayment window.
In fact, these non-profit organizations are often funded by banks, credit card companies and other retail lenders. While this may seem like a conflict of interest, this special relationship may actually improve their negotiating power. Unfortunately, it may not get you out of debt any more quickly: Credit counseling programs can take as long as seven years to complete. That’s also not fast credit card debt relief.
If your debt situation is serious, neither debt consolidation loans nor credit counseling can provide the necessary firepower to pull you out of debt trouble. Once you’ve exhausted these debt relief options, a last-resort bankruptcy filing may be in the cards.
Filing for bankruptcy offers two major advantages. First, it stops your creditors in their tracks: Once you put your finances in the hands of a judge, you’ll stop receiving threatening phone calls and e-mails from collection-agency goons. Bankruptcy also eliminates most or all of your debts in relatively short order.
Of course, you’ll pay a serious price for your bankruptcy filing. Depending upon how much property you own, your creditors may end up seizing the bulk of your assets to cover your outstanding debts. You’ll also exit the process with your credit score in shambles. It can take a decade or more to build your financial reputation back to pre-bankruptcy levels.
There is another way: debt settlement. Unlike credit counselors and debt consolidation loan providers, debt settlement firms pride themselves on their ability to reduce their clients’ principal balances. Rather than simply slowing the growth of your debts, the debt settlement process can arrest and reverse it. Debt settlement may be faster than other forms of debt relief.
In the long run, you may save thousands of dollars with debt settlement relative to credit counseling and debt consolidation loans. While the debt settlement process will negatively affect your credit score for a time, this effect tends to be shorter-lived and less severe than the devastating credit impact of bankruptcy. Debt Consolidation USA is committed to connecting you with the country’s best debt settlement providers.
Every debt dilemma is different. Before you decide to enter a debt relief program, carefully review your options and pick the plan that’s best suited to your individual needs. You’ll find detailed information about a variety of debt-relief articles and money-management topics here, so take a moment to look around.
If you have any questions or want to get started on your search for the best debt consolidation services out there – including debt settlement – use the live chat feature or fill out the contact form. We’ll explain your credit card relief options and answer any questions you have about debt consolidation programs, credit counseling, bankruptcy and debt settlement. Your debt-free future awaits.