subject: Debt Relief Options – What Are The Best Options To Reduce Your Credit Card Debt [print this page] I hear the term "Debt Consolidation" from consumers every day. The problem is, people are using the term "debt consolidation" as a way to describe debt relief in general. Most people who say, or are thinking about "debt consolidation" are actually referring to Consumer Credit Counseling Services (CCCS.)
Debt Consolidation or a Debt Consolidation Loan, is when you pay off several smaller debts with one new loan usually at a lower interest rate. Debt Consolidation loans are "Secured" which means it's attached to collateral such as your home. Debt Consolidation loans are risky because if you run into trouble again and can't make the new loan payment, you could lose your home.
Consumer Credit Counseling Services (CCCS) simply negotiate a lower interest rate with your creditors. Each month you now make your monthly payment to the CCCS, and they distribute the money for you.
There are many problems with CCCS. First THEY are in control of your money. They automatically deduct the payment every month from your checking or savings account. The problem is, they don't make the agreed payments to the creditors on time, resulting in more fees. The only purpose of a (CCCS) is to lower the rate and make the payment for you, however when the payment is late, the interest rate they negotiated (maybe 6-7%) goes back to the maximum 28-30%!
Another problem with Consumer Credit Counseling is that it's a public record record, similar to Bankruptcy. It will reflect on your credit for 7-10 years, and bar you from getting financing down the road. It will be very difficult to qualify for a car loan, personal loan, home or even a credit card.
Consumer Credit Counseling has also come under heavy criticism from government regulators. Perhaps the most misleading aspect of Consumer Credit Counseling is the "non-profit" status of most agencies. Consumers often think "non-profit" means no fees involved, this is not the case, standard fees still apply. Consumer Credit Counseling companies receive kickbacks of 7-15% of the monthly payments. How can the consumer expect objective advice from an agency that directly accepts compensation from creditors?
Debt Settlement, unlike Debt Consolidation or Consumer Credit Counseling, actually eliminates a large portion of the debt you owe. The creditor forgives the balance in a transaction called a "settlement." Debt Settlement is the only program where principal is reduced, not just the interest rate. With Debt Settlement, there is NO INTEREST RATE.
Reducing the principal and eliminating interest makes a huge difference in debt relief. Instead of paying 5-9 years with Credit Counseling, or 10-30 years through Debt Consolidation, Debt Settlement will usually have you debt-free in as little as 12-36 months. There are a few problems with this approach as well, usually transparency, and protection or help, in case you get sued.
Debt Relief Options What Are The Best Options To Reduce Your Credit Card Debt
