Credit Counseling and Debt Consolidation – Measures to Clear Away Accumulated Debts

It is not a very pleasant situation to be in when the debts swell up and go haywire. Apart from catering to mounting debts and interests, it may test your mettle to deal with calls from creditors, debt collectors and attorneys etc. The journey on debt-ridden path is never easy. However, if you put on your thinking caps and make the right moves, you may steer yourself to a path of recovery. Here is an insight into two of debt management’s most powerful strategies – credit counseling and debt consolidation.

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Credit counseling

Credit counseling services are offered by professional counselors and counseling agencies. A number of these agencies operate on non-profit basis. It is best to go in for credit counseling when self initiated measures to curb debts are found wanting. A number of agencies offer credit counseling and debt consolidation, both.

How do credit counseling agencies work?

Credit counseling agencies employ professionally qualified individuals having a firm grip on finance handling and debt management issues. These counselors get to the bottom of an individual’s fiscal situation and work out a realistic budget after mutual discussions with the client (i.e. you).

Once a budget is tabled and payment plans are in place, regular counseling sessions are offered to monitor the effect of budgeting and financial planning. Small and medium debts can be cleared away through – adhering sincerely to the counselor’s advice and sticking to the planned strategies.

In case the debts have soared high, a credit counseling agency may suggest a debt management plan. This is a special measure taken up when it has become increasingly difficult for a debtor to stick to the required payment plan or when there are multiple debts to handle.

In a debt management plan, the counselors try to strike chord with your creditors and table your situation to them. In the negotiations that follow, the counselors try to negotiate the best repayment plans for your debts. For instance, the creditors may agree to lower the interest rates on debts or put off a few charges levied. This creates a little more room for a debtor to maneuver his/her funds and repay debts.

Once negotiations between the credit counseling agency and creditors are settled, a payment plan is prepared keeping in mind the relaxations offered by the creditors. The debtor is to follow this plan and make a solitary monthly payment to the credit counseling agency. The agency then routes the payments to individual creditors. It untangles a lot of knots when a debtor has to make a single payment each month in lieu of multiple payments to different creditors. Any relaxations granted by creditors add to ease out a debtor’s situation.

Points to watch out for when going in for credit counseling

1. Investigate for any fees and/or hidden charges for the credit counseling services provided.

2. Run down a sincere check on the credit counseling agencies legal standing.

3. Watch out for any clauses that may tie you down from taking any loans or credit while pursuing a debt management plan with the credit counseling agency.

4. Have a clear idea about the tenure of the proposed debt management plan.

5. Credit counseling agencies that require you to pay before hand for any services they offer should be best avoided.

6. Beware credit counseling agencies that are too pushy to enroll you in debt management plan without investing adequate time in your situation.

Debt consolidation

Debt consolidation essentially is merging all debts into one and paying them off by a single consolidated loan. Credit counseling and debt consolidation go hand-in-hand in many cases.

Debt consolidation comes with the major advantage of doing away with high interests being levied on every single debt and dealing with a solitary loan, generally at lower rates. Credit card debts can be consolidated by transferring debts on to single low interest (at times zero percent) loan (or you might even opt for balance transfer to a new card).

Another advantage is that a consolidated loan makes it much easier to manage payments, as you need to pay just once per month. Additionally, these loans may also lend tax benefits.

The flip side however is that – such loans require collateral to be put up. This changes the scenario big time as the unsecured debts convert to secured debts. In case of any shortcomings while repaying the loan, the collateral is at stake. To state the point, if you put up your home as collateral towards the loan and fall short on the repayment schedule, you stand a risk to lose the home.

Be wise and go for measures that are in accord with your fiscal situation. With a dedicated effort and right moves, debts will clear out of the way.

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