Debt Relief Options - How to Consolidate and When to Get a Debt Settlement

If you are in debt and want to get out of it now, you have two great options. Those options include either debt settlement or debt consolidation, but which one is best for you?

One of the first things you want to do is determine the importance of your credit score; how important is it to you? If you currently have a good credit score, debt settlement will negatively impact it. Although better than bankruptcy, it can take years to reverse the impact on your credit report. If your credit score is important to you like if you want to buy a house in the next few years, debt consolidation is a better alternative.

Next, look at your financial problems; are they only short-term or something that can go on for years? If you are only facing short-term money problems but are close to getting back on your feet, debt consolidation is not right for you. Debt consolidation is a long-term fix. Debt settlement can enable you to negotiate down your monthly payments to something you can afford for the time being.

Unfortunately, it isn't always easy to choose between settlement and consolidation, but it is important to make the right choice. The wrong decision can lead to even more financial trouble. For example, with consolidation, the company pays your bills and then you are responsible for repaying them. If you cannot afford these payments, you are back where you started and in debt all over again.

The best approach is to do a little bit of research online. Also, speak with both a debt consolidation company and a debt settlement company. Get more information on the process of debt relief and see how it can benefit you or if it even can at all.

How Does Credit Card Debt Consolidation Affect Your Credit Report?

By the time you have entered into a credit card debt consolidation program, your credit score has probably already suffered some ill effects. Late payments to creditors are recorded and will lower your overall credit score. Continued late payments will accelerate the loss of points, until ultimately your credit report shows nothing but late and missed payments.

When the monthly payments for your credit cards bills become too much to handle, a good option is to get a debt consolidation loan. This will immediately remove the balances that are owed, stopping late fees, harassing phone calls, and threats to send collection agencies after you.

But is it that easy? Will the credit card companies actually let you pay off your balances all at once without hurting your credit score?

The answer is yes and no. Yes, you will be able to pay off the balances completely with a consolidation loan. This will show up on your credit report since the reduction of debt on your credit report will increase the amount of available credit. You will be done dealing with your credit card companies after this is done.

The tricky part comes from how the new loan is manifested in your credit report. There is a possibility that for a short time, your credit report may show that you have no available free credit because of your past debts, and that at the same time you took out a new loan, which further decreases your available credit into negative territory.

If poorly timed or performed in a certain way, this could hurt your credit score because it will appear that you have taken on more debt than you have credit available (even though you have not). Sadly, there really is no solution to this problem. It is simply a fact of moving your debt from one source to another.

However, in reality, it is a very small loss when you consider what a future after bankruptcy looks like. This is only one outcome, though. The core debt consolidation process will not hurt your credit score at all, it is only technical glitches that threaten any change.

Free Credit Repair Debt Consolidation

In the current economic times people are doing all that is possible to reduce the amount of debt they have. Debt consolation has become very common. This can be explained as taking a single debt to pay the existing several debts that the individual may be having. This, however, does not mean that your debts have been cancelled. You will need to pay this debt in a single controllable debt. It is a good ideal for people with good credit reports. It may, however, affect your credit report depending on the type of debt consolidation you take.

In most cases, people seeking to take debt settlement loans have a bad credit report. It is therefore necessary that you consult the free credit repairing agencies before considering taking debt consolation. Debt settlement may affect your credit score positively or negatively depending on the type of debt consolation loan you take.

Generally you can repair your credit by ensuring that you pay your credit cards on time and making sure you do not add more to your debt by taking more of the credit cards. When considering debt consolation as a way of repairing your credit, it is tricky since closing credit cards might have an effect on the credit score. At the same time if you keep more of your credit cards open it is an indicator that there is available credit hence it will increase your score. This will really confuse you and that's why the services offered by credit repairing companies would be very necessary. Consult them for advice before considering taking debt consolation.

It has been noted that the effect on your credit score is entirely dependent on the type of debt consolidation that you decide to take. Debt settlement loans that make it possible for you to pay all your debt and still maintain your account will not affect the credit score in a negative way. On the other hand if the debt settlement maintains that you close the account it will affect them and at that negatively. Therefore look for free credit repair agencies to advice you on what to do.

Is There a Cheap Debt Consolidation Loan For Poor Credit?

If you have an excessive amount of unsecured debt and you are struggling to make your monthly payments, a debt consolidation loan may be the answer to your problems.

If, in addition to your unsecured debt you have seen your credit score fall, getting an affordable debt consolidation loan may be a bit of a challenge for you. Is it possible to get a cheap or affordable loan under these circumstances? With a poor credit score, any money you borrow is going to be more expensive than if you had an excellent credit score.

Fear of a slightly higher interest rate on a loan is not a good reason to cross this option off your list of possible solutions.

What can you do?

Realize that different lenders have different loan standards and rates. Banks generally have the highest standards, followed by credit unions, followed by commercial lenders. Because commercial lenders usually have access to a variety of sources for funding, credit score problems may not be a stumbling block to borrowing money. With Internet access, you can compare several companies at one time.

But are they cheap?

If a debt consolidation loan can be obtained for a lower rate than the highest rate you are paying on an account, the loan is probably a good idea. Suppose you have credit cards that are at an effective rate of 22% a year. If you can find a loan for less than that amount, getting a loan and paying off the credit cards is a better financial idea.

How do you find a reputable and reliable lending company on the Internet? Start locating companies using a search engine. Research the companies for the number and type of complaints, if any, lodged against them. Check them out with the Better Business Bureaus. Talk to financial experts and bankers in your area. Compare the services and rates between companies.

When you compare the costs related to a debt consolidation loan, remember that you must compare that interest rate to not only the interest rate on your unsecured debt, but you must also include late and finance charges that might be accruing against your unsecured debt when your payments are late.

Does Consolidation of Credit Cards Lower Credit Score?

Thousands of people all over the country are facing financial hardship and considering consolidating their credit card debts to get out from under the money they owe. If you're thinking about this option, there are a number of things to consider, including the potential impact it can have on your credit score.

Debt consolidation does a number of things for a consumer, some of which can negatively affect your credit score. On the other hand, consolidating your credit card debt can also do a number of beneficial things for your credit history, including lowering your debt to income ratio, a factor that plays a large part in your credit score.

One of the largest things debt consolidating does that can hurt your credit is settling your debt for a fraction of what you owe. This is one of the biggest reasons people use debt consolidation companies: they have too much debt and can't afford to pay it all. It's important to keep in mind that this reduction of what you owe will show up on your credit history negatively, although it's usually worth it for many individuals with too much debt. That's why it's important to carefully consider how much you owe and your ability to pay before you decide to consolidate credit card debt.

A positive thing that debt consolidating can do for your credit score, in addition to lowering your debt to income ratio, is lowering the total amount of creditors you owe. Having a great number of credit lines open can hurt your score and most debt consolidation companies will assist you by closing all of your accounts and paying them off for you. This will mean that you will only have a single credit line open instead of many.

If you're considering consolidating your credit card debt but you're afraid of the impact on your credit score, remember that the benefits far outweigh the negatives for many individuals. Your credit score may go down in the short term, but getting out of debt and paying off what you owe will benefit you and improve your score in the long run.

The Top Ways to Consolidate Your Credit Card Debt

In these tough economic times its easy to run up too much money on your credit cards, whether it be from loss of a job, bad investments you were counting on to withdrawal in emergencies, or a multitude of other reason. Whatever the cause, the result is still identical; you have too many bills with not enough money to pay them. The best option is to reign in your spending habits and save enough money to pay back your cards as quickly as possible. However, for people already on a tight budget this may be impossible. If this is the case for you, it may be in your best interests to consolidate your debt instead of paying each card off individually.

The Benefits of Consolidation

There are several benefits to consolidation. Most times you will get better interest rates with a consolidation loan or balance transfer offer than you had on your old card. This is especially true of home equity loans. If you're deep in debt, just a few percentage points can add up to substantial savings each year - savings you can use to repay the principle on your loan.

There is also only one bill to pay each month. You only need to remember one due date and one creditor to pay instead of remembering the due dates on several different cards or loans. In most cases, your monthly payment will also turn out to be lower when you consolidate than they were before consolidation.

Your credit score also stands to benefit from consolidation. If you have too many lines of credit open, it begins to negatively impact your credit score. By closing some of these lines you should see an improvement in your score. However, be careful not to close too many. One of the essential elements of your credit score is the percentage of your credit line that is in use. This fraction counts for thirty percent of your score and if you have cards that are almost maxed out, your credit score can go down by several hundred points.

Most people consolidate their credit card debt in one of three ways.

Zero-APR Balance Transfer Offer

One of the easier ways to consolidate credit cards is to find a card with a zero-percent balance transfer offer with a credit line large enough to transfer your existing debt onto it. With a zero-percent APR, all your money is put towards paying off the principle, not the interest. Even if you can't find offers at zero-percent, still paying several percentage points less in interest should add up over the time of paying off the loan.

However, you do have to be careful of the fees that are assessed at the time of the balance transfer. Most, if not all, credit card companies charge a certain percentage, usually between three and seven percent, of the balance transferred upon putting it on your new card. If you can't pay off your balance soon, you will still save money even with these fees, but if you were close to paying off your balance you might be better off keeping your money on your old card and paying interest for a month or two. Choose wisely.

Take Out a Home Equity Loan

If you owe over $10,000 in debt, you may want to consider taking out a home equity loan. Home equity loans are loans that use the equity that you own in your house as collateral. Because these loans are secured, you can get a lower interest rate on them than you would with unsecured personal loans. But if you have bad credit you may not be able to obtain one of these loans, or the interest may be close to the interest on your credit card. You also must pay mortgage closing costs at the start of the loan, taking a few more dollars out of your pocket. Finally, be careful not to fall behind on your payments for this loan, if you do the bank will seize your home.

Debt Consolidation Personal Loan

If your accounts are already in collection, you have no property to use as collateral, or you are way, way, way in debt over your head, you may want to use the services of a debt consolidation company. These companies work with your lenders in an attempt to lower your interest rates and monthly payments. They pay your creditors directly, so each month you write them a check and they send it in to your creditors.

Do your research before entering into a contract with any of these companies however. Some may advocate not paying your bills to get a better deal, or they just may not send in your monthly payments. Either way, your credit score will be damaged by these actions. Your best bet will be to find a non-profit debt consolidation company that's well established in the field.

Always Rip Up Your Cards

I can't stress this enough, when you've taken these steps and consolidated your cards, rip up your old cards and cancel the accounts, especially if you can't control your spending. This step is important. If you cheat and don't close an account, you may end up with more debt than you started with - the old debt you consolidated and the new debt you're running up on your credit cards again.

Remember the first rule of holes - "If you find yourself in a hole, stop digging!"