Is Debt Consolidation a Good Choice?

Debt consolidation is good for those who're struggling to pay many debts and cannot afford to make their payments each month. A debt consolidation program can give them debt relief so that they will replace their many monthly payments with one low payment each month. When consolidating your debt, you pay less each month and save thousands of dollars. But, is this your best option?

Other Ways to Pay Off Debt

Essentially, there are five ways to get rid of your debt and lead a more stress-free life. Please look at the options below, and carefully consider what will work best for you.

Interest Rate Arbitration
This involves taking out a secured loan at a lower interest rate to repay your current unsecured debts. The process assists you to reduce interest rates on your existing debts, and you could potentially benefit in the following ways:

1. Reduce your interest rate
2. Lower your monthly payments
3. Improve your credit score

Debt Management
In this case you would work with a debt solutions company to help you pay off your debt and create a long-term budget. You would benefit by:

1. Reduced interest
2. Most late fees may be waived
3. Managing your many bills each month would be easier

Debt Settlement
Debt settlement involves hiring a settlement company to work with your creditors to reduce your payoff amount/balance. The following benefits occur through debt settlement:

1. Your principle balance is reduced by more than 50%
2. You get out of debt within as little as 12 months

Chapter 13 Bankruptcy
Chapter 13 bankruptcy is handled in the court system, and is essentially a debt repayment plan. The benefits you may see are:

1. Creditors are willing to reduce the interest on your debt
2. Your principle debt balance will be reduced
3. Your assets will not be used to pay off your debt

Chapter 7 Bankruptcy
Like Chapter 13 bankruptcy, Chapter 7 bankruptcy is also handled in court; however, your assets may be at risk, as some could be assigned to a court-appointed trustee, who sells them and uses the proceeds to pay off your debts. But there is a key benefit to Chapter 7 bankruptcy:

1. Your total debt is discharged and no longer owed

Below are a few examples to help you with your decision:

Debt Consolidation Example

Suppose you have accumulated debt on 3 credit cards, as well as miscellaneous bills and a personal loan. The details of these accounts are:

Outstanding balance on credit card A (15%) - $15,000.00
Outstanding balance on credit card B (20%) - $12,000.00
Outstanding balance on credit card C (23%) - $10,000.00
Amount you owe on miscellaneous bills (13%) - $18,000.00

Your average interest rate on these four bills is 17.75%

After you enroll in a consolidation program, the interest rates on your debts could be negotiated down to:

Credit Card A - 10%
Credit Card B - 16%
Credit Card C - 18%
Miscellaneous Bills - 9%

Your average interest rate then goes down from 17.75% to 13.25%

Debt Settlement Example

Let's say you have six credit card accounts, totaling $75,000.00. If you make the minimum payments on these accounts it will take you several years to pay them in full, and you would have paid (with average interest rates ranging between 15% and 30%), $223,500.00 by the time these accounts are paid.

If you hire a debt settlement company to negotiate with your creditors, you will likely pay less than $35,000.00 to your creditors to get your accounts settled in full, with no further balance owed.

We're not suggesting that you simply stop paying your accounts to save money; remember, this community was designed for people who are struggling with debt. So, if you're finding it hard to pay your bills, this may be an option for you.

 How Our Get Out of Debt Community Can Help

With so many members here, our community gives you the tools, strength and support to resolve your financial problems. Here are some ways you'll benefit by becoming a member of our community:

• Forums: Probably one of the best features of our Debt Consolidation Forum, this allows you to openly discuss your financial problems, and receive free debt advice from other community members. Some of these members will share their own personal experiences with you, while others are experts in the field working every day with credit, collection agencies, debt consolidation, debt settlement, debt management, mortgages, personal finance, budgeting, taxes, bankruptcy, credit repair, loans and so many others. 
• Debt calculators: These are wonderful financial tools that will help you calculate your debt and figure out how much you save by consolidation or settlement. These calculators have tools to determine how long you'll take to pay off your credit cards and how much you need to pay monthly. Then there are calculators which help analyze your debt and income and calculate the APR on your loan. Finally, there are calculators to help you choose the debt solutions suitable for you. In short, you can determine whether or not you should get debt consolidation help or go for settlement, interest rate arbitration or bankruptcy. 

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