Who is the best option for debt consolidation?
Posted by Financial Advisor | Filed under Debt, Loans & Mortgages
I have a friend with I believe just over $80K in business/personal (his personal cards are used for business) credit card debt and looking for a solution to help lower the monthly strain on the business. What would be the best solution in this case? He's already looked at some debt consoliation comapnies and feels as though he has no way of knowing for sure if they would work for him. Is this a situation where something other than debt consolidation would be better?
He's looked into the following debt consoliation companies:
http://www.commercialdebtcounseling.com/
Appreciate any advice that can be offered. Thank you.
check out this article. This might help
If at all possible I would try my hardest to stay away from a cccs. They do help a lot! However, they damage your credit score at first. And it doesn't look that good when you apply for a credit application. If possible I would suggest refinancing your home and looking into the possibility of consolidating in the mortgage loan. Or, taking out a personal loan for the amount needed to pay off the cards.
Most if not all of these so called "debt consolidation companies are a scam.
What they do is not pay your creditors for months and then try and settle with them for less. No special skills. They just don't pay.
They also charge a fee everymonth to do this.
Your creditors do not have to talk with these people. It's your debt.
Also, if they don't pay your creditors. You, and you alone are still responsible for the debt. Your creditors will sue you and not the company you hired.
You many find the information at http://www.mycashdiary.com very useful for becoming debt free.
Debt consolidation comes in many forms, so it is important that you reflect on what your needs and concerns and financial situation are before signing up for an online debt consolidation program. The four primary concerns for most consumers are: i) monthly payment, ii) time to debt freedom, iii) total cost, and iv) the credit rating impact of the consolidation program. Be sure to evaluate each program, relative to your prioritization of these factors.
Debt Consolidation Loan
Many people think first of a debt consolidation loan when seeking online debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt. It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high… but the monthly payment will be lower than other options and there is no credit rating impact.
Credit Counseling
Credit counseling, or signing up for a debt management plan, is a very common form of online debt consolidation. There are many companies offering online credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts – but with lower monthly payments. On average, most online credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report… and, unfortunately, many lenders look at enrollment in credit counseling
akin to filing for Chapter 13 Bankruptcy – or using a third party to re-organize your debts.
Debt Settlement
Debt settlement, also called debt negotiation, is a form of online debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of online debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.
Net-net:
While there are many forms of online debt consolidation, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the online debt consolidation option that fits for you.