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More and more consumers today find themselves in the uncomfortable situation
of only being able to afford the minimum
Payments on their credit cards. Or, even worse, not being able to afford
even the minimum payments. In today’s world, it is
often easy to get in over your head and find yourself spending more than you
make. It seems that everything is going up but
wages, and it is all too easy to fall behind.
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American Debt Foundation
http://www.americandebtfoundation.com
Many of these desperate consumers find themselves contemplating a bankruptcy
filing, but bankruptcy can carry a legacy you
will have to live with for years. A bankruptcy filing will stay on your
record for a minimum of seven years, and you may find
it difficult or impossible to obtain necessary credit in the interim.
Fortunately, there are alternatives to filing bankruptcy, even for consumers
who owe thousands or even tens of thousands of
dollars to various banks, credit cards and other creditors. Many people ask
whether it is best to go with a debt reduction
program or enroll in a debt consolidation program program. While there are some
similarities between these two types of programs,
there are some important differences to consider as well. Let us consider
the five most important differences between debt
reduction and debt consolidation program.
1. Did you know that most debt consolidation program programs will require
that you close all of your credit accounts? The few
exceptions to this requirement include accounts that are required for
business needs, accounts with very small balances and
accounts on which there are cosigners who are not applying for Debt
Consolidation services. Debt reduction services, on the
other hand, do not require that all credit accounts be closed. This can make
it much easier to keep a credit card for
emergency and convenience purposes.
2. debt consolidation program services typically take longer to complete than
debt reduction services. The average length of time to
liquidate debt through a debt consolidation program service is 5 years. Unlike Debt
Consolidation, debt reduction programs can often
allow consumers to retire their debts in less than a year.
3. Cost savings in the form of reduced payments is another important
advantage of debt reduction programs. While credit
counseling programs typically require that the entire amount of the debt be
repaid, debt reduction programs can be negotiated
to allow the consumer to repay only a portion of what is owed. Most
creditors are willing to work with consumers enrolled in
debt reduction programs and that includes accepting a lower repayment
amount. Settlement amounts can range anywhere from
20% to 60% of the amount owed, with the industry average being around 50%.
4. Your credit score is also affected in different ways by Debt
Consolidation programs versus debt reduction programs.
Generally, credit-reporting agencies will re-age the accounts of consumers
enrolled in debt consolidation program services after three
payments have been made. With a debt reduction settlement, the status of the
account does not change. If the account is
current, it will remain current. If it is past due, it will remain so. It is
also good to remember that with a debt
reduction agreement the creditor will report that the account has been
“settled in full” or similar wording, at the
conclusion of the debt reduction program.
5. The final difference between debt reduction programs and Debt
Consolidation is the bargaining power enjoyed by the consumer.
debt consolidation program programs rely on the submission of a debt repayment
proposal which the creditors are free to accept or
reject as they see fit. With a debt reduction program, however, all
creditors are contacted immediately to inform them of the
hardship situation and the desire to resolve it through a negotiated debt
reduction agreement.
American Debt Foundation
http://www.americandebtfoundation.com
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