Credit Card Debt Consolidation

Many Arkansas residents who are coping with credit cards and other unsecured debts are in need of a debt relief option that can ideally do two things: provide necessary relief, and maybe save quite a bit of money every month. The goal behind a debt consolidation program is to combine or "consolidate" all of your high interest unsecured debts into a single, less stressful and more predictable payment each month made to a debt consolidation company. The debt consolidation, or credit counseling company then has the task of distributing on time payments to each of your creditors until all debts in the program are paid off, or resolved. We'll delve into the details of how a debt consolidation debt relief program works, but first it's important to know the differences between credit card debt consolidation debt relief program and a debt consolidation loan.

Comparing Debt Consolidation with a Debt Consolidation Loan

Debt consolidation debt relief and a standard debt consolidation loan both have similar goals, but they provide relief in very different ways. In the case of a debt consolidation or debt management plan coordinated by a credit or debt counselor the goal is to get an understanding of the debt load a consumer is facing, the amount of money each month that can reasonably be allocated to payoff or pay down debts, then design a personalized plan that "consolidates" multiple high interest consumer debts into a single, more affordable, payment each month. Plans like these can generally help many consumers rein in debts quickly, and at an affordable and easier-to-manage pace.

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On the other hand, a debt consolidation loan allows consumers to pay off multiple high interest credit cards and other debts all at once with the "ready money" of a debt consolidation loan. In theory, a debt consolidation loan makes perfect sense in that it can "convert" multiple high interest debts into a single, lower interest rate loan. However, Arkansas residents should be aware that debt consolidation loans typically require that a home or other asset be used as collateral to get approved for the loan. That means if consumers, already struggling with debts, hit a rough patch financially, they could be putting their home or other asset at risk. Basically, they may have converted "unsecured" debt that doesn't put their home at risk into a "secured" debt that does.

Also, many consumers who pay off credit cards with the proceeds from a debt consolidation loan end up quickly accumulating a whole new round of credit card debts. In this scenario, consumers now have a debt consolidation loan AND multiple high interest credit cards to deal with. Thus, the cycle of debt for consumers in this situation has only worsened.

How Debt Consolidation Works

A debt consolidation plan, also known as a debt management program (DMP), is meant to concentrate or consolidate several high-interest consumer debts into a one manageable monthly payment. A debt management plan coordinated by a credit counselor or debt counselor can give personalized assistance for consumers who need a proven, predictable, accelerated path out of debt affording them the benefits of debt relief, such as lower, more lenient, interest rates and the waiving of late fees and penalties.

How are plans tailored to each debtor? A credit counselor (or debt counselor) typically will interview consumers to gain a clear understanding of all of their debts. Then they will conduct a budget analysis with consumers to find out how much money can be realistically allocated each month to pay down those debts. Finally, based on this information they will come up with a game plan (a debt management plan or DMP) and send proposals to each of the consumer's creditors requesting the benefits of debt relief for the individual or family experiencing financial hardship. These benefits can include lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who agree to the proposals are then added to the debt management plan. For those that do not, consumers are still obligated with creditors according to the terms of their original agreements. On the whole, debt consolidation or debt management plans can be very effective and save consumers a lot of money, but first they must STOP using credit cards and START paying down the principal amount of debt on time, every month, at a LOWER INTEREST RATE.

Will a debt consolidation or debt management plan help you resolve debts faster and how much could you save? Find out by requesting Your Free Debt Relief Evaluation and Savings Estimate.

State Financial Assistance

Debt relief programs have been known to help many consumers - including the elderly and those requiring medical assistance - during financially challenging times, but some consumers may need more immediate or possibly short-term relief, such as help paying for rent, utilities, child care or even buying groceries. The state of Arkansas has a variety of financial assistance programs available, such as the Low Income Home Energy Assistance Program (LIHEAP), Medicaid, ARKids First! Program, which provides affordable health insurance for children, and a variety of food assistance programs. To learn more, visit the state of Arkansas' official Benefits page.

Comparing Debt Consolidation with Debt Settlement

One method of debt relief that has helped many individuals and families is credit counseling. However, it's important to know that this form of debt management requires discipline and a certain amount of restraint to avoid relying on credit cards, and it normally takes three to five years to complete the program and take advantage of all the money saving benefits. Then, there's debt settlement, a more aggressive form of debt relief that may help anyone facing the prospects of bankruptcy get out of credit card debt faster, assuming they can "set aside" money in a designated account that can later be used to reach a settlement with individual creditors.

With debt settlement, credit card companies may eventually decide to "sell off" debt as "bad debt" to a collection agency if consumers fall seriously behind in payments. In this scenario, creditors may get as little as 10 cents on the dollar, so it stands to reason that credit card companies may be willing to accept a reasonable settlement offer made by the consumer or by a debt settlement company working on the consumer's behalf to negotiate a settlement. Be aware that when consumers default on the terms of credit card agreements in order to set aside monies in a settlement account, creditors may threaten or take legal action. In addition, money saved through credit card negotiated settlements are subject to federal taxation. Lastly, while debt settlement will usually have a negative impact on one's personal credit, the impact will not be as serious or long lasting as personal bankruptcy.

To learn more about your debt relief options, request Your Free Debt Relief Evaluation and Savings Estimate.