Debt Consolidation Loans, Debt Management Services or Debt Settlement. Which is Best?
Debt Consolidation Loans:
The best way to reduce your monthly payments is to obtain a debt consolidation loan. Debt consolidation loans will generally have a much lower interest rate than the debt it is being used to clear and will therefore reduce your monthly bill as well as making your debt far easier to manage.
Debt consolidation loans can be either a home equity loan or a personal loan which is used to pay off your bills and unsecured debt, including credit card debt.
A home equity loan has amongst the lowest interest rate of any loan and also has the added benefit of allowing the borrower to deduct any interest payments from their taxes, the flip-side of this is that your home is at risk should you miss payments.
With both home equity and personal loans there will be the opportunity to negotiate terms for smaller payments over a longer period. However, extending the term of the loan will result in paying more interest.
Debt Consolidation Programs or Debt Management Services
Debt consolidation programs manage your debt by dealing with your creditors on your behalf and negotiating reduced fees they then distribute payments and manage your debt. It is in the interest of the debt consolidation companies to attain the lowest interest rates they can from your creditors.
The main difference between companies is the amount they charge for the initial negotiation period and the ongoing management fee and, their customer service practices with regards to continuing management with yourself and your creditors.
The use of such services demonstrates to creditors that there is a commitment to pay back debt and although your credit rating can be affected initially it can recover quite quickly to the point of being able to apply for new credit or even a mortgage loan, as long as regular payments at the agreed levels are maintained.
Debt Settlement and Bankruptcy
As a last resort debt settlement can be used. If your debt has got to the point where you are several months behind on bill payments and/or you are struggling to such a degree that debt consolidation fees are too high for you to manage to pay, you may want to consider debt settlement or bankruptcy.
Your debts will be reduced drastically using both of these but they are options that should be considered carefully and be avoided if at all possible as your credit score will be completely decimated for up to 10 years and as a result you will not be able to gain approval for credit at all.
However, should your financial situation be that severe you may have no other option.
Conclusion: Taking a long hard look at your finances and working hard to find the option that benefits you the most is vital, you should always aim to fulfill your obligation to your creditors by paying back your debt and the best outcome would be if you could do this with the minimum of damage to your credit rating.
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