Debt elimination programs help to reduce your debt and improve
your financial situation. But not all programs offer the same
benefits or risks. Depending on your situation, some programs
will be better than others.
Debt Management Plans - Programs To Handle Accounts
Debt management plans (DMP) handle your unsecured loans. You
make one monthly payment to the company, and they handle the
rest. A debt management company also works with creditors to
lower your rates, helping you to pay off most accounts in five
years. Creditors have predetermined rates, so all debt
management companies will get you the same reduced rate on your
accounts.
Not all loan rates can be lowered, for instance car and student
loans. Your credit may also be frozen for a year or more.
However, as you establish regular payments and a lower debt to
income ratio, you will soon qualify with conventional lenders.
Debt Negotiation - Programs To Reduce Debt
Debt negotiation programs reduce part of your debt. Most
companies boast that for a fee, they can reduce accounts from
10% to 50%. With a lower principal balance, your monthly
payments will be lower, allowing you to pay off the rest of your
account.
A reduction of your loan balances will have a long term affect
on your credit history. While you may qualify for subprime
lending, most conventional lenders won't handle your application
for at least two years. Reduced debt also has to be reported as
income for tax purposes.
Credit Counseling - Programs To Develop A Plan
Credit counseling programs create a personalized financial plan.
A certified counselor discusses your situation in a private
meeting, either in person or over the phone. They may suggest
loan consolidation, DMP, or debt negotiation. They can also help
you plan for your future goals, such as purchasing a home or
retiring.
When you are comparing programs, be sure to compare the affect
on your credit score, not just fees and tempting lower payments.
The slower approach of a DMP can save you thousands in interest
costs on future loans. However, there are cases when debt
negotiation is the better option, especially to avoid
bankruptcy.
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