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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Debt Relief Tools / Debt Management Programs

Turn on the TV and, no matter what channel you watch, you’ll hear about the stimulus package approved by Congress.  The government decided on their debt relief package, one with the intent to stimulate the economy. 

Now, it’s your turn to decide on a debt relief package, one that will stimulate your own financial well-being.

Video: How to Recover from Debt

Get debt relief now by using the tools you may not know are available to you.  There are many debt management programs to choose from.  Check out your options and choose the one(s) that will get you out of debt the quickest … and help you stay out of debt!

Debt Settlement

What does debt settlement mean and how can it benefit you?

Objective:  The primary objective of a debt settlement is to negotiate your debt with your creditors to a smaller, more manageable amount that, after being satisfied, will consider your debt as being paid in full.  You can either pay the smaller agreed-upon amount in a one lump sum, or creditors allow a payment arrangement to be reached.  In this challenging economy, you would have a stronger chance at selecting the option that works best for you.  Either way, your debt would be paid off in full in a relatively short amount of time.

Advantages:  The advantages of this approach are that your debt gets settled or paid off and you achieve financial freedom.  You also gain the trust of current and future creditors, and your credit score improves significantly in a relatively short amount of time.

debt relief

Disadvantages:  The downside to this option, however, is that the amount you don’t pay on the accounts, the amount forgiven by your creditors, that is, may now be taxed by the IRS as income.  Also, you’ll need to check your credit reports to ensure that your accounts are considered current after you’ve paid off, or started paying off, the new agreed-upon balances.  Creditors don’t always make those updates.  You’ll need to make sure that closed accounts notate that they were closed by you, the consumer.  If your accounts note that your creditor closed the account, it looks very negative on your credit report.  Make sure you check out your credit reporting with the three major credit reporting agencies to ensure accuracy.

Video: Why Debt Consolidation is Doomed to Fail

Debt Consolidation Loan

Is a debt consolidation loan right for you? 

Objective:  The purpose in choosing debt consolidation is to consolidate all your debt into one manageable amount and monthly payment.  Typically, this is done through a second mortgage or a refinance of your home.

Advantages:  The advantages of this method are that it wipes out your debt in one fatal swoop, you pay only one much smaller payment and your credit score soars fairly quickly due to the paid off account balances.

Disadvantages:  There are disadvantages to using this option, though.  Your payments may now be more manageable, but you’ve signed over your home over as security.  It’s also going to take you a lot longer to pay off that debt, typically 15 years.  If you get in a pinch and cannot pay your payments, you could lose your home through foreclosure.  Most people who choose this option have too much credit card debt due to overspending.  If you are able to form a budget and stick to it to address the excess spending, this could be a viable option for you.

Personal Bankruptcy:  A Viable Alternative?

Bankruptcy is an alternative to getting rid of your debt, but one to be weighed heavily.  It can destroy your credit, making it difficult, if not impossible, to get credit for years to come.

Objective:  The primary objective of a bankruptcy is to wipe out all your debt in order to relieve you of the undue burden of debt you cannot possibly pay.  This option should only be considered if you have tried all other alternatives. 

Advantages:  If you’re down on your luck and you’ve tried all the other debt resolution options without success, then this may be the best option for you.  Once you’ve filed, all collection calls cease and no further collection efforts can proceed against you.  In essence, your debt gets wiped out and you can start fresh.

Disadvantages:  There are major disadvantages to personal bankruptcy.  You may be ineligible.  There are very stringent guidelines set forth by the government in order to even be eligible to file for personal bankruptcy.  If you don’t qualify, you won’t be allowed to file.  Instead, you’ll have to pursue other means to resolve your debt, anyway.  Another substantial disadvantage is that your credit report can notate the bankruptcy for up to 10 years, hindering your ability to get good interest rates on loans and credit cards.  Most financial institutions will not even consider you for a mortgage for at least two years after the bankruptcy is finalized.  This option presents a very long-term negative impact to your credit.

Choosing a Credit Counselor

Okay, you’re armed with substantial knowledge about different debt resolution tools available to you.  You’ve considered all the options and want to move out of the drama on to the demise of your debt.  You may want to consider using a credit counselor to obtain more specific direction regarding which option would work best for you.

The federal government provides very specific direction regarding credit counselors in the financial industry.  It is important that you scrutinize credit counseling companies prior to selecting one to assist you in your quest for debt resolution.  There are unscrupulous companies that have been prosecuted by the federal government, and you need to make sure you are using a reputable one.

Below is a list of several credit counseling companies approved by the U.S. Department of Justice that specialize in assisting consumers with debt relief:

Advantage Credit Counseling Services, Inc.
River Park Commons
2403 Sidney Street Suite 400
Pittsburgh, PA  15203
888-511-2227

Allen Credit and Debt Counseling Agency
195 Brooks Street East
Wessington, SD  57381
888-415-8173

Alliance Credit Counseling, Inc.
13777 Ballantyne Corporate Pl.
Suite 100
Charlotte, NC  28277
888-594-9596

Consumer Credit Counseling Service of Greater Atlanta, Inc.
100 Edgewood Avenue
Suite 1800
Atlanta, GA  30303
866-672-2227

Consumer Credit Counseling Service of Greater San Francisco
595 Market Street
Suite 1500
San Francisco, CA  94105
800-777-7526

Consumer Credit Management, Inc.
28124 Orchard Lake Road
Suite 102
Farmington Hills, MI  48334
888-821-4357

Credit Advisors Foundation
1818 South 72nd Street
Omaha, NE  68124
800-942-9027

Credit Card Management Services, Inc.
4611 Okeechobee Blvd., Suite 114
West Palm Beach, FL  33417
800-920-2262

Debt Education and Certification Foundation
112 Goliad Street
Suite D
Benbrook, TX  76126  
866-859-7323

Debt Reduction Services
6213 N. Cloverdale Road
Suite 100
Boise, ID  83713
877-688-3328

Forbes & Newhard Credit Solutions, Inc.
7505 Tiffany Springs Parkway
Suite 520
Kansas City, MO  64153
816-582-4322

Greenpath, Inc.
38505 Country Club Drive, Suite 210
Farmington Hills, MI  48331-3429
800-630-6718

Hummingbird Credit Counseling and Education, Inc.
3737 Glenwood Avenue
Suite 100
Raleigh, NC  27612
800-645-4959

InCharge Education Foundation, Inc.
2101 Park Center Drive
Suite 310
Orlando, FL  32835
866-729-0049

Money Management International, Inc.
9009 West Loop South
Suite 700
Houston, TX  77096-1719
888-845-5669