If you’re struggling with a lot of unpaid bills, debt consolidation may be an appropriate solution. This is where you combine your bills into one thereby making a single monthly payment to a consolidation company instead of paying several bills per month to many creditors. Consolidation helps to lower your monthly payment and saves you money along the way.

Is consolidation the right choice for you?

Debt or bill consolidation is an appropriate solution for those who can’t meet up with their monthly payments because of high interest rates, late payment fees and over-limit charges. If they enroll in a debt consolidation program, it’ll help them obtain low interest rates and an easy-to-manage payment structure through negotiation with creditors. Alternatively, if you apply for a consolidation loan, you can get rid of multiple bills through one large payment. Then you pay back the consolidation loan in small monthly installments.

A consolidation program is right for those who:

• Have multiple bills such as spiraling credit cards, medical bills, payday loans etc.
• Owe a lot of money to several creditors or collection agency.
• Can’t keep a track of several bills payable to creditors.
• Can carry on with monthly payments, though at low rates of interest.
• Are on their jobs and have moderate income.
• Wish to avoid filing a bankruptcy.
• Can cut down on their spending and save money to pay off bills.
• Stop charging on their credit cards and avoid incurring additional debt.

A consolidation loan is appropriate for debtors who:

• Have good credit record and income.
• Can’t manage several bills and deal with many creditors.
• Wish to get rid of troubled accounts through a lump sum payment.
• Have the financial strength to repay a single loan in small monthly payments.

The best way to find out if consolidation is the right choice for you, is to analyze your financial situation. Most consolidation companies offer a free debt counseling session wherein a consultant evaluates your financial situation and suggests whether you should consolidate or settle your dues. Once you attend a counseling session, you’ll be able to find out what’s right for you.

Is DIY consolidation or balance transfer a good solution?

If you’re in problem with your credit card payments, transferring the entire balance to a low interest card or interest-free card can be helpful. It’ll enable you to reduce or eliminate your interest payments. Thus, you can concentrate more on paying down the principal balance.

A balance transfer is most suitable for you if the interest-free period is long enough to help you pay down the entire balance within that period. Otherwise, once the introductory rate period ends and the regular APR starts, you’ll end up in debt again as you need to pay much more in interest on the outstanding balance.

While you use a balance transfer card, make sure you don’t have to pay a large amount of fee. Read the fine print carefully to ensure that the transfer doesn’t wipe out your expected savings.

Whether it is a consolidation program/loan or a balance transfer, if utilized properly, each of the methods can reduce your monthly outgoings and simplify your financial life. With consolidation, you can keep a track of multiple bills and get creditors off your back by paying back your dues within a period of 4-6 years.

If you’re knee deep in debt, cannot pay your bills and wish to avoid collection calls, you may consider debt settlement (also known as debt negotiation). This is when you negotiate and reduce the outstanding debt by 40-60% of the amount you owe. The creditor forgives the remaining debt thereby helping you to get out of debt faster.

How settlement (or credit card debt settlement) works

Debt settlement companies offer a settlement program wherein they negotiate with your creditors/CA in order to settle the debt for less than what you owe. The companies charge an upfront fee for their services. Given below is an example of how debt settlement or credit card debt settlement works.

How credit card debt settlement works – An example

Let’s say Jesse owes a total debt of $100,000 on 5 credit cards. She is finding it difficult to keep up with the minimum payments. She has earlier consulted a credit counseling agency but the monthly payments they negotiated with her creditors were too high for her to pay. Jesse doesn’t want to file bankruptcy as she does not want to involve the court. So, finally Jesse ends up working with a credit card debt settlement company XYZ. Here are the 4 steps on how Jesse could settle credit cards and pay off her dues.

1. Stop payment to creditors: The representative at the credit card debt settlement company asks Jesse to stop paying her creditors and deposit a certain amount monthly into a savings account (i.e. a trust account that XYZ creates for Jesse).
2. No more handling of collection calls: While Jesse starts falling behind on her payments, she may receive collection calls, which are effectively handled by the representative. Jesse doesn’t have to handle such harassing calls on her own.
3. Negotiation starts soon after: As Jesse accumulates good amount of dollars into the trust account, the representative at the credit card debt settlement company starts negotiating with her creditors one by one.
4. Debt is reduced by 40-60%: Finding that Jesse won’t be able to pay enough, her creditors agree to accept a reduced amount, say around 40-60% of her outstanding bills.

While Jess pays off one debt, she waits for better offers from other creditors. She makes sure that any extra money coming in would be used to pay off her bills. Finally, after a period of 2 years, Jesse is able to settle credit cards debt with all her creditors.

Whether it’s a credit card debt settlement program or one which includes other dues, you should stop paying your creditors initially. Instead, send in those payments to your settlement company. Otherwise, you cannot gather enough funds to settle credit cards dues and other bills.

Once you have enough funds deposited into the trust account, debt settlement (or credit card debt settlement) companies negotiate with your creditors/CA and attempt to stop all collection efforts. Find out the details on how to negotiate credit card settlement (or debt settlement on other bills) from the 6 steps in debt negotiation program.
Debts you can settle

Credit card debt settlement is quite common. Other than unsecured credit cards, medical bills, gas/store cards, personal loans etc can also be settled. But tax debts, alimony, child support, mortgages, car loans and federally insured student loans are excluded from a settlement program.
How much to pay for settlement

Debt settlement companies charge 25-35% of the debt balance that is forgiven under the program. The fees are based on:

• How much you owe in total
• Number of debt accounts you have
• How much you’ll save by settlement

How long it takes to settle debts

It usually takes 2-4 years to complete a credit card settlement program or settle personal loans, medical bills and other dues. The period of completion depends upon your total debt amount.
Creditors may not sue after settlement

Once you negotiate debt settlements with your creditors/CAs, they may not come after you for the balance. It is illegal in many states such as Arkansas, Texas, Georgia, Michigan, Washington etc. However, in other states such as Alabama, Delaware etc, the creditor retains his right to sue you under certain conditions.

How to choose best debt settlement companies

In order to find out the best debt settlement usa companies, you need to check out the following details:

• Company profile: You need to check the profile and service background of debt settlement companies and then choose the one that suits you.
• Company accreditations: These include the certifications that the debt settlement companies have obtained so far. For instance, you may check their BBB reports and find out what they say about debt settlement online (or credit card settlement) companies. There are other accreditations such as being a member of the TASC (”http://www.tascsite.org/index.php”), IAPDA (”http://www.iapda.org/”) certification etc.
• Program fees and costs: You need to find out what fees are charged by debt settlement companies. Compare the fees and then choose the best debt settlement usa companies you can deal with.
• Client testimonials: Look out for testimonials and feedback given by debtors on the services of the debt settlement usa companies. You can also ask your friends and associates about reputable debt settlement companies they have dealt with.

Pros and Cons of debt settlement (or credit card debt settlement)

Whether you go for credit card debt settlement program or settlement on personal loans, payday loans etc, here are the pros and cons that you should be aware of.
Pros:

1. Avoid bankruptcy: With debt settlements, you can reduce your debt burden and pay off bills comfortably. You can negotiate with the creditors or collection agency (CA) and settle your debts for as much as you can afford to pay. Thus, you don’t need to file Chapter 7 bankruptcy. There are chances of losing your home or car in bankruptcy wherein your assets are sold off to pay your creditors.
2. Single payment: Instead of paying multiple bills each month, you’ll have to make a single monthly payment to the settlement company. The monthly payments are accumulated in a trust account in order to be paid off to your creditors/CA after negotiation. So, you can avoid the stress of paying debts at different rates and dealing with several creditors at a time.
3. Avoid unfair collection practices: You can avoid unfair collection practices and harassment by debt collectors if you negotiate a settlement.
4. Eliminate extra charges: The settlement company can try and eliminate late payment fees, if any. Any over-the-limit fees on credit cards can also be minimized or eliminated by way of settlement.
5. Avoid lawsuit & other legal actions: Creditors or the CA can file a lawsuit, get a judgment order and garnish your wages or place lien on your property. You may be able to avoid such legal actions if you’re in a settlement program.

Cons:

1. Credit score drops: In a settlement program, you’re asked to stop paying your creditors till you gather funds for making a lump sum payment to settle your dues. Moreover, you may settle your bills only after your accounts are charged off. Due to late payment or charge-offs, your credit score takes a hit.
2. You may owe taxes: Once you go for credit card settlement or settle other debts, creditors will forgive a percentage of what you owe. As such, the IRS will require you to pay taxes on this forgiven debt which is known as cancellation-of-debt (COD) income.
3. Account status on credit report: Unless negotiated with creditors or CA, the account status on your credit report will be updated as “Settled” which creates a negative impact on your score as compared to a “Paid in full” status.

Debt settlement program provides an easy way out of debt. However, your credit score is likely to go down when you stop paying creditors and save money for debt settlement (or credit card debt settlement). But you can repair your score by using a secured credit card, or a gas/store card. Such cards are easily available even if you have a poor credit history. Besides, you need to pay off other bills on time while you settle credit cards and other dues using debt settlement services.

Just in case you don’t want to take help from online debt settlement usa companies, you can go for do it yourself debt settlement. Use sample letters in order to communicate with creditors/CA. Just make sure you understand how the process works and negotiate in the best possible way.

If you’re in trouble managing multiple bills, you may replace all of them into a single debt consolidation loan payable at a low rate of interest. Debt consolidation loans are available as unsecured personal loans and secured loans such as mortgages.
When should you go for a debt consolidation loan?

You may go for a consolidation loan when you’re in any of the situations given below.

* You find it difficult to manage multiple bill payments.
* You cannot deal with several creditors at a time.
* You cannot stay current on your bill payments.
* You’d like to replace all your bills into one easy monthly payment.
* You wish to save dollars after making monthly bill payments.

How do you benefit from unsecured debt consolidation loans?

Unsecured debt consolidation loans offer 6 benefits as you’ll find below.

1. Consolidate bills: Using debt consolidation loans, you can pay off all or most of your unsecured bills (credit cards, payday loans, medical bills etc) at once. You’re then left with a single loan, which you’ll repay through an affordable payment plan.
2. Reduce stress: Paying off multiple bills using a single debt consolidation loan reduces your stress level and helps you to avoid dealing with several creditors.
3. Eliminate collection calls: With debt consolidation loans taking care of your bill payments, you can avoid getting harassing calls/letters from creditors and collection agencies.
4. Low interest rate: Unsecured loan for debt consolidation is often available at rates lower than the interest rate on your credit cards. So, the monthly payments will be lower than most of your current bill payments. Otherwise, you won’t be able to save dollars.
5. Long term loan: Low debt consolidation loans (low interest consolidation loans) are usually available for longer term. Low rates and longer term are the 2 reasons why the monthly payments on a consolidation loan are comparatively lower.
6. Budgeting gets easier: Unsecured debt consolidation loans help you to replace several bills with one easy manageable payment. Hence, your monthly budgeting gets a lot easier.
7. Credit score shines: When you pay off your dues with a single debt consolidation loan, it will have a positive impact on your credit. As such, your credit score will shine.

How do you choose the right consolidation loan?

Given below are 3 tips to help you choose the right debt consolidation loan.

1. Shop around: Shop around with a number of financial institutions prior to choosing a low debt consolidation loan. The interest rates on the loans will vary. As such, you need to find which company requires you to pay the least monthly installment on your loan. If possible, try and negotiate a better rate with the companies. Check the company profile and service background also.
2. Watch out for the costs: Before you sign on any document, make sure you’re aware of the loan costs you’ll have to pay. If possible, ask the company to breakdown the costs of taking out a consolidation loan.
3. Add up interest and fees: Calculate the monthly payments, interest and charges on your existing bills. Then compare the figure with what you need to pay for the low debt consolidation loan. Make sure your monthly payment on the consolidation loan is much less than your current bill payments.

How do you qualify for the loan?

You need to have a good credit score and appreciable income in order to qualify for unsecured debt consolidation loans. The purpose is to make sure that you can make payments on the consolidation loan in addition to repaying your monthly bills and expenses. Moreover, you won’t get such a loan if the total amount you owe is too low.
How much does it cost to take out the loan?

You need to pay certain fees to take out debt consolidation loans. It depends upon the financial institution that offers the loan.
What should you check before you apply for the loan?

Here are the 4 things you need to check before you go for consumer debt consolidation loans.

1. Check your credit report: Your credit report will help you identify financial/credit problems that can be eliminated using low debt consolidation loans.
2. Total amount due: You need to calculate the total amount you owe. This is essential as because it will help you decide how much of a consolidation loan you’ll need in order to pay off your dues.
3. Type of bills: You need to decide what type of bills (credit cards, payday loans etc) you’ll pay off using the consolidation loan. This is because your total dues can be much higher compared to the consolidation loan amount available. Moreover, you may not include a low interest account, which is easily manageable.
4. Plan a budget: You need to work out a monthly budget and find out what amount you can pay towards the consolidation loan on a monthly basis. You should apply for a consolidation loan worth the amount that’s comfortably payable.

Are there any disadvantages of a consolidation loan?

Usually, unsecured debt consolidation loans (low debt consolidation loan obtained without owning a home) involve longer repayment term. So, even if your monthly payment is low, you actually end up paying much more in total interest throughout the longer term. Moreover, Unsecured debt consolidation loan doesn’t provide you with any tax benefit. This is because the interest on a personal loan is not tax deductible just as the interest on a mortgage loan.

There’s no doubt that low debt consolidation loans help you to consolidate all your dues into a single manageable payment. On one hand, it helps to bring your finances back on track while on the other hand, it creates a positive impact on your credit. However, in case you don’t qualify for debt consolidation loans, you may consider debt consolidation program as a way out of your debt problems.

Are you looking to reduce your debt payment and save in interest costs? Debt consolidation program can help you benefit from lower rates of interest and cut down your monthly payment on bills and debts. This article helps you to explore the 8 debt consolidation benefits as given below.

1. Rate reduction: You can reduce the interest rate on your bills and debts through negotiation with creditors. If you approach a debt consolidation company, they’ll negotiate on your behalf. Your creditors (or collection agency, if the debt is sold off) will restructure payments so that you can manage your debts better.

For example, if you have three credit cards at interest rates of 18%, 12% and 9%, then the average rate of interest at which you’ve paying them is:

(18% + 12% + 9%)/3 = 13%

Say, after consolidation, the interest rates become 13%, 10% and 7% respectively. Now the average rate of interest becomes:

(13% + 10% + 7%)/3 = 10%

Now if you owe $5000 on your credit cards, then the reduced rate of interest would save you $150 per month.

2. Debt repayment plan: You’ll get a debt repayment plan from your creditors or collection agencies. The new plan with reduced interest rates will help reduce your bill payments so that you can afford to pay off at least the principal balance in full along with some amount of interest.

The plan is developed such that you don’t default while on a debt consolidation or bill consolidation program. You’ll be able to save dollars and organize your finances better.

3. Single monthly payment: Consolidation program requires you to make a single monthly payment towards your bills and debts. That is, you make one payment to the consolidation company every month. The company will divide and disburse the funds to all your creditors. So, you don’t need to make multiple payments to individual creditors at different rates of interest.

4. Reduction/elimination of late fees: When you default on a debt account, late charges/penalty fees and accrued interest get piled up with time. Such costs can be reduced or even eliminated by negotiation in a debt consolidation program.

5. Get debt free faster: If you pay a little more than the minimum on your credit cards, you’ll take comparatively less time to pay off the debt. A consolidation program helps you to make payments such that you don’t have to carry on with an account too long. Thus, it accelerates the time period you need to get debt free. With this program, you can eliminate debt in just 4-6 years compared to an average time period of 20 years or more.

6. Get rid of collection calls: The consolidation company negotiates with the creditors and collection agencies on your behalf. This helps you to avoid getting harassing calls from your creditors or collection agencies.

7. Improve your credit: Late payments, defaults and charged-off accounts have a negative impact on your credit score. Once you are enrolled in a debt consolidation program, your accounts start getting paid off. This appears on your credit report and helps in raising your score in near future.

When all the accounts are paid in full, the consolidation company negotiates with your creditors and tries to get your accounts reported in your favor.

8. Free debt counseling: Most debt consolidation companies offer free debt counseling service to debtors willing to consolidate their bills and debts. The counseling session allows you to analyze your situation and discuss your debt relief options with a debt consultant. This is to make sure that you know what’s best for you.

Living a debt free life is not impossible. But it requires determination, time, patience and discipline. Given below is a list of 7 steps on how to lead a debt free life.
Step 1 – Admit that you are in debt problems

The first step towards a debt free life is to admit that you are in debt. Leaving bills unpaid and avoiding creditor calls isn’t the solution to your debt problems. In fact it makes the situation worse. However, the fact that you’re reading this article implies you have already accepted that you are in debt and you’re ready to take the next step.
Step 2 – Seek professional help

Take professional help from a debt consolidation or settlement company. If you’d like to obtain lower rates and consolidate your bills into a single monthly payment, then debt consolidation program is the right option for you. But if you wish to reduce your debt amount, then you should go for debt settlement.
Step 3 – Free debt counseling

The consolidation/settlement company will offer a no-obligation free debt counseling session. In this session, a consultant will analyze your financial situation and suggest the right debt solution for you. To make his task easier, you can prepare a list of your debts/bills. Next to each of your dues, put down the name of the creditor, the total amount you owe, the rate of interest and monthly payment. This will give the consultant a better picture of your financial standing.
Step 4 – The consultant prepares a monthly budget for you

Based on the total amount you owe and your monthly income, the consultant will help prepare a monthly budget for your expenses. This is to find out how much you are left with after paying your utility bills and other expenses. The amount left over will be used to pay off your dues.
Step 5 – The consultant negotiates with your creditors

In a consolidation program, the consultant negotiates with the creditors/collection agency in order to lower your rates and monthly payments. However, if you’d like to settle debts, the consultant won’t negotiate for lower rates. Rather, he’ll talk to your creditors about reducing your outstanding balance.
Step 6 – Start making payments

You need to make a single monthly payment to the consolidation company which distributes the amount amongst your creditors. This goes on for 2-6 years till you’re out of debt.

In case you choose settlement, you’ll have to stop payments to your creditors and make monthly payment to the settlement company. The payments accumulate into lump sum cash after months. The lump sum amount is then paid off to the creditors/collection agency.
Step 7 – Say a big No to any new debt

When you consolidate or settle debts, make sure you don’t add on more debt. Otherwise, it will be difficult for you to get debt free. So, just say “No” to any new debt when you’re in a consolidation or settlement program.