There are various ways for an individual to handle debt problems. There is always the legal option of bankruptcy but a person may want to consider debt consolidation, debt settlement programs or credit counseling programs first.
Debt consolidation refers to the act of taking out one loan to pay off many other debts. This loan is usually at a lower and fixed interest rate while the debts that it pays off are usually at a higher interest rate or maybe even a variable rate.
You can get a consolidation in the form of another unsecured loan but more often than not the debt consolidation loan will be a secured loan with a valuable collateral. Most often this is a home. Because the loan is secured by collateral it allows for a lower interest rate.
Debt consolidation loans are often used to pay off excessive credit card debt. Credit cards usually have much higher interest rates than any other type of credit. However because of the advantages to the consumer there are companies who will charge excessive fees for a debt consolidation loan. A consumer will want to be sure that they carefully review their good faith estimates and the costs of the loan that they get.
As with anything a debt consolidation may be a great idea but there will always be unscrupulous lenders who will try to take advantage of people when they are down.
You need to be fully aware upfront of how this debt consolidation loan will affect your credit and how much it will cost you in the long run.
You may also want to consider a debt settlement program. A debt settlement company will actually negotiate with the lenders to reduce the balance of the debt. You will pay the monthly payments into a escrow account until a settlement is reached. There is some risk to you as a consumer because not every lender is willing to negotiate and they will still have the right to pursue legal action against you if they so desire.
Credit counseling can provide consolidation of your debts without the hassle of taking out a loan. This is referred to as a debt management plan. Usually the credit counselor will help you to consolidate multiple unsecured debts into just one monthly payment. An accredited agency may be able to negotiate the terms of your credit and when they do the consolidated monthly payment is usually less than the total of the separate payment. However, not all creditors will agree to work with you to reduce the debt.
If you are struggling with massive debt the best thing to do is to find a program that works for you and implement it as soon as you can so that you can move on with your life and stop worrying about it.
