subject: Types of Credit Card Debt Consolidation [print this page] There are two types of credit card debt consolidation companies which include debt settlement companies as well as non-profit credit counselors.
Debt settlement, which consists of negotiations with creditors, allows the debtors to pay off a lesser agreed-upon amount of money. These settlement companies can often reduce the debt balance from somewhere between 40 to 60 percent. Unfortunately, many debtors end up having to borrow money in order to pay off other existing debts therefore increasing the amount owed. This typically results in failure when the debtor runs out of available credit options and therefore cannot continue to make the payments each month. Creditors therefore attempt to agree upon a debt settlement amount instead of allowing the debtor to declare bankruptcy as it is unlikely for them to get their money if this occurs.
The process of debt settlement typically occurs during a period between 12 and 36 months and offers many advantages including the fact that debtors no longer have to be harassed by their creditors. This is due to the debt settlement company directly contacting the creditor and representing the debtor. However, it is important for debtors to know that creditors are still legally allowed to contact those who owe them money.
The goal of a debt settlement company is to completely eliminate all debt. The first step is to complete a contract giving the company the right to negotiate and contact the creditors, a contract which gives them "Limited Power of Attorney". During the settlement procedure, the debtor will make monthly payments towards the account of settlement. The collection of funds allows the company to negotiate with the creditors and, once an agreement is made, the money is sent to the creditor/s. Once this is done, the debt is considered paid.
The second form is non-profit credit counseling which also serves to negotiate a lower rate of interest as well as a lower amount for monthly payments. Some companies are able to reduce the interest or eliminate the interest payments altogether. There are certain requirements which must be met in order for someone to be accepted into counseling. One of these is that the debtor must have accumulated a certain amount of debt. Another is that the debtor must have no reasonable way to pay back the debt owed.
The service is typically used with credit cards or other forms of unsecured debt, service bills such as attorney, medical or dental bills, as well as auto, bank, and student loans. It can also be used for utility bills and rent. You cannot use these companies for debts such as child support or criminal fines. These and other loans which are not covered by these companies must be paid in full. However, if an individual faces foreclosure, the counseling company is able to speak on the debtors' behalf to the lenders. Unlike debt consolidation companies, counseling companies collect monthly payments from the debtors and it is paid to the creditors at the agreed rate. The typical period for payments is 48 months
