Which is right for you? That depends on many factors, mainly your current and projected financial situation. There are many misconceptions about these two options and in this article I will explain the positives and negatives of each.
Credit Consolidation is to combine outstanding debts into one or several loans. The important thing to remember is that with a consolidation you are not reducing the principal debt amount you owe. In most cases your principal debt will increase at first because of closing costs or transfer fees. A Credit Consolidation can be a good move but only if the new loan is at a lower interest rate than the individual debt items. Over the years I have advised hundreds of clients on how to get out of debt. It seems that initially most people want to consolidate their debts to not only reduce interest but to make their lives easier by making only one payment. I recommend that if you get approved for a consolidation loan to only accept if the interest rate is substantially lower than the loans you are consolidating. It makes no financial sense to consolidate loans to make your life easier. This is especially true if you refinance your mortgage to pay off credit cards. Remember, only consolidate for a lower interest rate and take all closing costs into consideration. Another potentially useful situation to consolidate is if you are struggling with minimum monthly payments. In some cases you can buy yourself some time if you're able to consolidate and have a substantially lower payment, although this will generally prolong the amount of time it takes to actually pay the debt off.
Debt Settlement is also known as Debt Reduction. Debt Settlement is different than Credit Consolidation because the goal is to reduce your principal debt amount. This is done through negotiating with your creditor to lower your debt amount based off your specific financial hardship. If you are not in a hardship the program will not work because the creditors will have no reason to lower your debt amount. What qualifies as a hardship? As always, this depends on your situation. Some people are already behind and can't afford their minimum monthly payments; this is definitely a financial hardship. If you're current but are in danger of falling behind in the near future, you also might qualify for Debt Settlement. Debt Settlement is usually the fastest way to get rid of unsecured debt besides bankruptcy. The main tradeoff is that it's not good for your credit score. If you have decent credit, your payment history will be negatively affected which is enough to pull your credit score down into the "poor" range. In order for Debt Settlement to make sense for you, the benefit of paying off your unsecured debt in less than three years must outweigh the fact that your credit score will be compromised. Once the debt is paid off you can begin to rebuild your credit.
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Interview with Suzy Orman
By: Anthony Charles Sokoly | 01-10-2008
Dear Mr. Cooper: I could not help listening to your interview with Suzy Orman tonight, I just wanted to comment on something Mrs. Orman was saying about the financial crisis, and what credit card companies are going to do to people who pay their credit cards on time, and have good credit.And how there is nothing people can do about it. Well it occurred to me in the midst of all this crisis business, and corruption, etc, I believe there are things people can do. How about not paying their bill when it comes. How about bankrupting the account. If they want to play hardball maybe it is time for the American people to flex their muscles. I know one might think this is adding insult to injury, I disagree. What could possibly be worse than what has been perpetrated on the American people, maybe it is time to fight back. Thank you
Money Market vulnerablity
By: Gordon | 30-09-2008
I am 85 years old with a small amount of savings in Money Market. I am old enough to remember the crash of 1929 and fear that our present financial problem could turn out to be similar to "29". Are money market funds vulnerable and do they have any insurance?
I have excellent credit and was told my mortgage ...
By: bunny | 30-09-2008
I have excellent credit and was told my mortgage with a 20% down payment was a slam dunk, is that still true? will I beable to get a mortgage today?
Mortgage
By: dennis2467 | 29-09-2008
i owe 180,000 on my mortgage and the value has fallen to 150,000. no one will refinance me. the rate is adjustable. i am also 3 months behind. anyone have any idea where to start?
I am considering taking a job without retirement ...
By: shegal | 29-09-2008
I am considering taking a job without retirement benefits. The pay is great, but it does not offer benefits. What to do?
Is there a legal way to lower or elimate credit ...
By: judy | 29-09-2008
is there a legal way to lower or elimate credit card debt?
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