Card Card and Debt Consolidation FAQ.

Are credit card debt consolidation programs the same thing as general debt consolidation loans?

No, debt consolidation programs that are available for credit cards, typically credit counseling and debt settlement, do not involve any lending at all. Rather, they involve negotiating with credit card company providers to reduce overall payments, the interest rates you need to pay, and also reduce the total balance owed.

How can consumers consolidate their unsecured debt?

Debt negotiation and debt settlement – This debt reduction type is negotiating the principal balance and debt owed by the consumer down by 40 to 60 percent or so. It is both the most cost effective and the fastest debt consolidation option available.

 

 

 

Credit counseling and debt management – This option for unsecured debt involves negotiating the interest rates charged on the credit cards. Credit counseling plans will usually be in effect for 4 and 5 years.

Credit card balance transfers – This option involves taking the balances of all your credit cards and putting them on another credit card with a lower interest rate or minimum payment. Be sure to select the best zero interest rate credit cards to transfer your balance to.

Debt consolidation loans – These type of arrangements involve the consumer taking out a loan to help pay off any outstanding credit card debts, bills and credit card balances. Normally this type of loan will also be secured by collateral like your home or vehicle.

Chapter 13 bankruptcy – When someone decides to take this option, it involves paying back your creditors over 5 years or so through a court-approved payment plan, and the amount to pay is based on your income.

Medical debt consolidation - While not as common as consolidating credit card debt, it is possible to consolidate your hospital as well as medical bills and debt. There are programs and methods to use that can help. Learn more.

 

Is a debt consolidation loan usually a good option for receiving debt relief?

In many more cases than not, yes. In some cases though, a consumer may be better off using credit counseling, debt settlement, or even bankruptcy for debt relief. In many other cases, people who need debt relief are not eligible for a debt consolidation loan because of issues such as bad credit, total high debt balances, or some other factor which may raise a red flag to a lender. Find ways to get help with debt consolidation and the best tips.

How do I determine whether a debt consolidation loan is a good debt relief option?

The most important factors are the rate, the term, and the conditions of the loan. For a debt consolidation loan to make sense for you, the monthly payment, interest, and/or pay back period must be less than staying the current course. Assuming these factors are all favorable to the consumer who needs help, the most important issues to determine the suitability of a debt consolidation loan is a) the nature of your debt problem b) the type of the loan, c) and the stability of your income and d) how these all impact each other. Find some of the top reasons why to consolidate credit card bills.

Why is the type of the loan important?

One, a secured debt consolidation loan will raise different types of issues for a debtor than an unsecured loan. For example, if a consumer who is looking for a loan takes out a second mortgage to help consolidate their credit card debt, they need to have sufficient income and also “breathing room” because as little as one missed payment can result in the foreclosure of their home. In addition, the nature of a debt consolidation is important because a low payment, high interest unsecured loan may provide you with short-term relief, but in the long run, it could actually cause the consumer to lose thousands of dollars in fees and/or interest charges.
 

 

 

Why is the nature of the debt problem important?

There have been some studies that showed that over 60% of consumers who go ahead and refinance their property, or who take out a second mortgage to pay off credit card debt and bills end up in the same financial position in about 2 years. Therefore, a debt consolidation loan will usually not make sense if the borrower’s circumstances are the result of either poor budgeting or overspending. In those cases, a debt consolidation loan will only delay the inevitable, which is coming to grips with a serious, maybe uncontrollable spending problem.

Why is income stability important?

The need for this is important for any consumers who are considering choosing the secured debt consolidation route because their home could possibly be foreclosed in the event that as little as one payment on the loan is missed. So if a consumers income fluctuates significantly each month or who if the person works in an industry / company that is laying off or losing jobs have much more to consider before they ever take out a debt consolidation loan. This issue is also very important for unsecured debt consolidation loans too because if the likelihood for successfully repaying the interest and the loan is low, the consumer is probably better off addressing the debt through credit counseling or settlement. After all, it is a waste time trying to pay back interest charges and bills that you cannot afford?

Are these type of bill consolidation loans tax-deductible?

It can be. The interest from debt consolidation loans that are secured by a home is tax deductible. This is one of the main advantages of this type of help.

What are some of the other advantages of using a home-equity debt consolidation loan?

The other advantages include the fact that the monthly payment and the interest are typically much lower than what you are paying on a credit card. This has to do because the debt is secured (so the lender is taking on less risk) and the payment term you are responsible for is somewhat longer. Another advantage of this option is that consolidating your debt into one payment will give you more peace of mind, but it also means that you are far less likely to be late on a payment or a bill, which will improve your credit.