Debt Consolidation / Settlement

Debt Consolidation / Settlement, also known as Debt Settlement, Debt Reduction, and Debt Negotiation, involves negotiating with creditors to “settle” a debt that is past due, charged off, or otherwise uncollectable. If negotiations can begin prior to the debt being turned over to “outside” collections, that is a private collection agency such as Arrow or Midland Credit, the balance owed can be reduced by up to 50 percent, and sometimes include credit reparations as part of the settlement and if planned and executed efficiently, can free a consumer of unwanted debt in as little as 12 to 36 months.

For consumers with high credit card debt, it means reducing interest payments that stifle savings and retirement plans, as well as diminish the quality of one’s annual lifestyle and future retirement. Anyone can qualify for debt settlement because qualification is not a matter of credit history but rather of whom one owes. There are certain types of debt that cannot be settled due to the nature of the debt, with whom it was originated, and how it may have originally been structured. Some of these include student loans, taxes, and other governmental programs as well as some types of secured debt. The best thing to do is speak with a debt settlement representative and determine if your debt can be settled and under what kind of plan it can be placed.

Consolidation Loans

Many consumers consider consolidating their debts through a home equity loan. One must be very careful when exploring this option. In fact, in our opinion, it is not recommended unless the loan is a complete refinance with single digit interest. If it is not, you are simply trading one poor interest rate for another. Home equity lines and second trust mortgages generally carry higher interest rates that are near or greater than 10%. Even though a loan of this type may save you money in the short term, any double digit, compound interest rate should be avoided at all costs, including temporary damage to your credit report / score. Yes, you read that correctly.

A credit ding or a series of them in a specific period of time can be corrected with diligent effort. They are also more and more meaningless as more time passes and they move further and further into the past on a given credit report. Therefore, it is far more sound (financially speaking) to devise a strategy to eliminate high interest payments that steal from your future and your quality of life. However, if you are like so many other Americans and are completely beguiled by the fairy tale that surrounds credit scores, then a home consolidation loan may be to your liking. But there are some things that you should consider before choosing a home loan.

  1. Bear in mind the possibility of foreclosure. This is not the use of fear tactics. Sound financial principles dictate that you never, ever risk your home (not real estate investments, but your home) for business or consolidation purposes. Unless as stated before, it is a complete refinance, in the position of “First Deed of Trust” and it is lowering your overall interest payment on the home itself.

    If you run the numbers on your loan, and you must for a moment consider the affordability of the new loan with consolidated debt, it is not worth it and should be avoided at all costs. The loan should only be considered sound if you can afford it right now, under your current financial conditions, not a promotion that may never come, and not a deal that may or may not close.
  2. In most cases, a consolidation loan only treats the symptoms, not the real problem. Americans who engage in a debt consolidation loan find that several years later they end up in the same situation----buried in high interest credit card debt and only able to afford the minimum payments. The problem lies in the fact that debt consolidation does not address the root of the problem, and therefore, consumers continue to overspend with their credit cards instead of living on a cash basis. We have many educational materials available on our website that will teach a consumer how to establish and realign their values and belief systems about consumer excess, as well as tools to help them execute a personal financial management plan in conjunction with their debt reduction strategy.

By committing to oneself, to a plan, and executing that plan each day, any person can become debt free and financially independent. Working in conjunction with an organization who can help you with the first step of being debt free is a good place to start.