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This is How You Consolidate Debts Without A Loan

April 30, 2013 newyork Leave a Comment

This is How You Consolidate Debts Without A LoanSome people immediately think that the best way to consolidate debt is to get a loan. While it may be true for some instances, you need to understand that if all you want is a single payment scheme for your multiple debts, a loan is not your only option.

There are several ways for debt consolidation to work without necessarily applying for a loan.

One of them is known as credit counseling and debt management. The great thing about this option is that the counseling part includes debt education so you are taught important lessons to help you stay out of debt. But in terms of consolidation, this happens when you enrol your debts in the debt management program.

In debt management, the debt counselor will help you create a debt management plan or DMP. This contains the debts that you have to pay for and how much you will propose to contribute every month. This monthly contribution is usually lower than your current. With this DMP, the counselor will negotiate with the creditor to allow you to make the lower payments. The thing about this plan is you will still end up paying for the whole debt. The amount is just stretched over a longer payment period. If the DMP is approved, you get to send the total debt payment to the debt counselor who will distribute the money to the respective creditors on your list.

Compared to debt consolidation loans, you don’t need a good credit score or a collateral to make this program effective. But in the same way, debt management does not have any debt reduction. Since you are still required to pay off all your debts without any reduction to your balance, you need to have a stable and steady income to support your payments. If you are unable to meet this requirement, then you can proceed with the other option to consolidate your credit obligations.

Debt settlement is another program that combines your debts so managing your monthly payments will be easier. This works just like debt management in terms of creditor negotiation. However, the similarity ends there.

With debt settlement, the debtor is asked by the debt negotiator or debt arbitrator to stop sending payments to their creditors. Instead, the money will be sent to a secure and insured account where it will be grown into a significant settlement fund. The idea is to convince the creditor that you are in a financial crisis and that you cannot make payments anymore. Usually, in 6 months time, the creditor will be ready to settle with the debtor. The debt negotiator will haggle on your behalf to convince the creditor to allow you to pay off a percentage of your debt and once completed, the rest of the debt will be forgiven. While the debt reduction is certainly appealing, it will be very risky since the creditor will not always be lenient when it comes to forgiving a portion of the debts owed to them.

These options will all work but you have to consider the fact that you need to base your choice on your unique financial situation. Also, there are certain sacrifices to be made for all of these debt solutions. For instance, debt settlement will destroy your credit score so if that is important to you, simply grow your income so you can afford the debt management program.

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