Credit Card Debt Consolidation and Debt Relief

A Closer Look at Consolidating Cards and Settlement of Debts

Aug 19, 2009

Consolidating Credit Card Debt can Cost Less , yamasoba

With credit card debt spiraling out of control for many, consolidation programs may provide a fresh start to getting out of debt and on the road to financial freedom.

Many people are barely keeping up with the interest repayments on their credit cards, let alone paying off their principal debt. Job losses and insecurity exacerbate the problem and many are desperate to find a solution to their credit card debt problem.

There are options for debt relief besides the drastic action of filing bankruptcy.

What Is Credit Card Debt Consolidation?

Debt consolidation means merging all the loans that a card holder may have into one loan with a lower interest rate or a fixed interest rate.

Why Consolidate Credit Card Debt?

Better interest rates,
Simpler life – only one bill to worry about instead of several cards to pay each month,
Lower monthly payments,
Closing other accounts may eventually mean a better credit rating,
Credit card companies often offer to give a free, no-obligation credit card debt evaluation online,
Elimination of late charges and over the limit fees.

How to Consolidate Credit Card Debt

Home equity loan: A card holder can take out a low interest home equity loan or line of credit and pay off all the credit card debt in one go. The debt will not be eliminated, of course, but the card holder will have only one loan to keep up with, at a lower rate. The risk is that the card holder's home may be repossessed if payments cannot be met.

Low interest personal loan: If a card holder still has a reasonable credit rating, taking out a low interest personal loan is a way to get a lump sum to pay off all credit card debts – once again, only one loan to worry about.

Debt transfer: Transferring debts into single 0% interest or low interest credit card and then making larger payments will ensure that a card holder will pay off the principal debt much faster.

Professional debt consolidators: If the problem is overwhelming, a card holder can approach a professional who will scour the market to find the best rates and consolidate outstanding credit card debt on behalf of a client.

Credit Card Debt Settlement

Debt settlement involves negotiating with credit card companies to reduce the total amount of debt owed and is a good solutions for card holders who are in serious credit card debt ($10 000 or more), are unable to make repayments or are in payment arrears. The more aggressive debt settlement programs claim to have a client debt free in 3 years versus 20 years.

How Debt Settlement Negotiators Operate

A debt settlement company will take care of negotiation, litigation and settlement of debt. They will arrange for the best solution for a card holder and may even be able to have late fees and penalties reduced.

Upon enrollment in a consolidation program, the client will save up disposable income in a designated savings account. As the money in the account accumulates, the company will negotiate with one creditor at a time to pay off an amount that is less than the original debt. Once enough money is saved up, the creditor is paid and the account is closed. The process repeats with each creditor until all debts have been paid in full.

Debt Consolidating – What to Be Aware Of

Debt consolidation loans can extend the length of repayment, even if the monthly repayments are lower, so in the long term the card holder may be paying more for loan.
Consolidation loans can make it easy for consumers to acquire more credit and more debt.
If a home owner uses his or her home for collateral, the property can be repossessed if payments are not met.
Debt consolidators charge for their services. Cardholders need to understand exactly how much they will be paying on fees and charges, shop around for the best deal and read the fine print on any contract before signing. There are many unscrupulous consolidators who will try to take advantage of the unwary consumer.

Credit cardholders need to get to the root of the problem that caused them to overspend on their cards in the first place. Like any addiction, shopping and spending can be an emotional way of coping with financial problems. If these issues are not addressed, there is a real danger that the card holder who has successfully consolidated his or her credit card debt, will fall into bad spending habits again and end up with more debt in the long term.

Source:

Debt Relief and Debt Settlement, Superiordebtrelief.com