Credit Consolidation – Good or Bad

In the world of economic crisis and recession, more and more of us are looking to other solutions to help in regards to spreading our money further and sometimes our income won’t spread as much as we’d like. As money becomes tighter and our daily spends do not seem to reach as far as we want, bills and debts may mount up and we’re forced to take extra help from elsewhere just to get by.

There are a lot of adverts these days for consolidation loans and they appear to be the one of the easiest ways to solve our money problems but this can often end up costing us more than we originally owed and can often lead us exactly back where we started, or get us into a worse position than when we began. Banks and a variety of financial companies will offer these consolidation loans that will generally pay off the majority of your debts straight away but as with any loan, there will be additional fee, calculated based on the total figure owing and how many days that it will take to pay the loan with an amount of interest added on top of the payments. In many cases, a majority of the consumers who take out these loans will be paying this over the top of what they expected for a long time, which can lead to a temporary break from creditors but ultimately lead to having a creditor in the bank or financial company that you took the loan from.

Similarly, there is a lot of promotion into debt settlement. Again, it looks like an easy way out. On paper, it seems that your debts can be cut down and once again you find yourself with ‘easy’ monthly payments. What a lot of people do not see are the hidden fees – Debt settlement is promoted usually through a ‘junk debt buyer,’ but these appear as normal financial companies showing to offer a variety of services, credit cards, personal and payday loans, you may have seen the adverts yourself. In the settlement you are offered a monthly figure to pay off your debt, after the company has spoken with your creditor(s) and reduced the total amount that you owe. What a lot of people do not see are, once again, additional fees that creep up into your payments. While it is true that a debt settlement will reduce the debt amount owed to your creditors, the company offering the settlement will add its own fees onto the money owing – these costs cover their administration fees – in essence you are paying the company to settle these debts for you. Here we find the issue – depending on what the company charges, you may find yourself owing more than you originally did, stuck once again in a perpetual cycle where the paying out seemingly never ends. In many cases, the financial companies that create a monthly repayment figure will not take into account the average expenditure of its debtor (e.g. income, utility bills, benefits, etc.) and create a figure which suits the repayment to the company, not the debtor.

Which, adversely, brings me to debt consolidation and debt management, – a better solution. Debt consolidation and debt management companies will look at the total figure owing, in a similar way to debt settlement companies but these companies will actually converse with you about your day to day in-comings and outgoings, providing a solution that will benefit both you and the creditors. Also, the money that you pay to the debt management plan does not get paid to the debt management company. It will go directly to the creditors that are owed. That is the main difference – many creditors will actually pay the debt management company to work on behalf of them because they know it is a lot fairer to the debtor and it achieves results quicker than it would with a debt consolidation company.

Credit counselling looks to achieve the best possible solution for you, potentially through a debt management plan or but helping you through a budget plan based on your own finances. Cheaper and more cost-effective, it is best to call these credit counselling companies first as they usually offer free, impartial advice to assist you in making the best decision with your money.


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