Monday, December 17, 2012

Choosing Between Two Types of Debt Consolidation

Contrary to popular belief, debt consolidation does not only involve taking a loan to pay off all your other credits. It is a general term that describes a debt relief option that allows the debtor to concentrate on one payment channel for all their debts. That is literally a method of combining what they owe several creditors so your payments only go to one destination.

There are two ways to achieve this. One is already mentioned: debt consolidation loans. The other is through a program known as debt management or credit counseling. Debt settlement, although in essence combines your payments into one, it is still too different because of the reduction goal.

The two types of consolidation are both effective forms of debt relief. They have the same goal of reducing the monthly payments through a lower interest rate and the elimination of different charges. They also have the same qualification wherein you have to possess a steady and stable source of income to pay off your debts.

Debt consolidation loans as previously mentioned, will involve a big loan that will help pay off your smaller debts. Though effective, some financial experts frown on this debt relief option because it is, afterall, illogical to pay a debt with another debt. It is like covering a hole by digging another one. But nevertheless, there are people who have found debt relief through this option.

The thing about these loans is you need to have a good credit standing or a collateral to be able to avail of a low interest rate. If the loan you will get is equal or more than the combination of what you have right now, going forward with the loan will defeat the whole purpose.

If you cannot avail of the ideal loan, then it might be more practical to go for a debt consolidation program.

This program is also known as a debt management or credit counseling program. These are third party companies who will help educate you of your options to get rid of your debts. You will be assigned a credit counselor who will help you negotiate with creditors for a lower interest rate. They will also work with you to waive off any penalties and charges that credit card companies are notorious for.

The great thing about this program is the credit counselor will help you come up with a debt management plan that will serve as your roadmap throughout your debt relief endeavor. This will provide you with guidance and direction as you pursue a debt free life.

You can choose either option and it is no doubt that debt consolidation can be the answer to your debt problems. If you wish to know more about it, click here. You can also compare different debt relief options here:

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