California Debt Consolidation
As the grip of a powerful economic recession continues, more and more people in California and across the country are seeking Debt Consolidation. And while the term has become a generic one for the debt relief industry - including that of credit counseling, debt management, debt consolidation loans, and even credit card debt settlement - the actual meaning of debt consolidation is rather straightforward.
Debt consolidation may be defined as the consolidation or combining of higher interest rate debts into a single, easier, more manageable, monthly payment.
Debt Consolidation Loans
As people in California and elsewhere move from bad to worse in their debt obligations, the need to consolidate debt can and does result in many seeking a debt consolidation loan. It's a process where high interest debts are consolidated into a single, lower interest rate loan. While this could be effective for some and on the surface seems pretty straightforward, a debt consolidation loan is a debt relief option that should be carefully considered before moving forward.
It's important to understand that a debt consolidation loan typically involves the consolidating of UNSECURED debt and paying it off with funds from a loan SECURED by assets such as a home, property or other. Should a consumer encounter financial problems and default on loan consolidation payments, the home or other important asset can be put at serious risk. And even when things seem to be going along smoothly, some less disciplined consumers wind-up with a whole new set of credit card charges - while they're making payments on the debt consolidation loan. It can be true double-trouble for many consumers. On top of that, for those whose credit was marginal to begin with when applying for the consolidation loan, there's a good chance the loan came with a high interest rate. That means a high interest rate loan and new credit charges also bearing a high interest rate.
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Credit Card Debt Consolidation Program
While consolidation loans, despite the drawbacks, can work for some people, a credit card debt consolidation program through a reputable credit counseling service may be for many, a more viable way to go. These services use a debt relief program called a Debt Management Plan or DMP.
Basically, this is a comprehensive debt relief plan that helps debtors payoff existing debt, hopefully on an accelerated timetable, and may help to reduce stress from bill collectors calling day and night. Speaking of bill collectors, as consumers you do have certain legal protections under the Fair Debt Collection Practices Act. (Please see the following link for more details on this)
The Fair Debt Collections Practices Act puts some restraints on relentless collectors and creditors, giving them limits and boundaries they must adhere to -- and it gives consumers important rights.
Consumer Credit Counseling
For those financially going nowhere fast and looking for relief from credit cards and other types of unsecured debt, it's may be best to consider options other than a debt consolidation loan. Informed consumers will take the time to examine the benefits of a debt consolidation Debt Management Plan (DMP) offered by credit card counseling services. Benefits which include consolidating all unsecured debt into a single, more affordable and lower monthly payment. In so doing, the creditors get paid back what is owed and you as the consumer can reduce your debt at a pace you can manage.
How Does Debt Management Work?
When consumers choose a counseling agency wisely and maintain the necessary financial discipline, reputable credit counseling service agencies can and do provide valuable debt relief assistance for consumers. The combining or consolidation of unsecured debt into a simpler payment is helping consumers across the country reduce debts on a predictable timetable and take control of their finances. It is important to understand that, for debt management programs to be successful, the consumer must agree to stop using all credit cards and not add any new charges.
Credit counseling agencies review all existing unsecured debt, balances and obligations. There will also be an examination of income from any and all sources and the general financial circumstances of the individual. Simply, the credit counselor must get a good grasp of what the consumer owes, and how much money the consumer has available to meet those obligations. Once this is understood, the credit counseling agency can make proposals, on the consumer's behalf, to creditors (one-by-one). Those proposals that are accepted will be added to the debt management plan. Those that aren't means that the consumer is still obligated to pay creditors under the original terms.
Overall, consumers on a debt management program are hoping to save money and benefit via lower interest rates, reduced or waived fees and penalties, and via a set timetable which can help them break free of debt in as little as three to five years. It is important to note that many people on debt management programs do not succeed, not because the program itself is deficient, but, in many cases, because the consumer placed on the program does not have the financial ability or discipline to set aside the necessary funds to make payments on time. Even though debt management plans can help to reduce interest rates, waive late fees and penalties, and generally provide more favorable repayment terms -- it is still THE CONSUMER'S RESPONSIBILITY to live up to the terms of the debt management plan. Under debt management, debt is NOT FORGIVEN, it is simply paid back under a different, hopefully more favorable, arrangement with creditors.
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Potential Benefits of a Debt Consolidation Program
Debt consolidation programs can help consumers save money by helping to reduce debt on an accelerated timetable. As noted above, this can be accomplished via reduced interest rates and fees. It can also help consumers by providing more lenient repayment terms, which can allow consumers going through tough times to make lower payments each month. Many consumers prefer debt consolidation via credit counseling as an "honorable" form of debt relief that helps them live up to their obligations and pay back all that they owe, just on a more relaxed timetable that they can afford.
The total amount saved by consolidating with any Debt Management Plan is contingent upon several things including how much is currently owed, the prevailing interest rate at the time preceding the plan's implementation, and of course whatever benefits the credit card company is willing to extend. Finally, it is vital that consumers understand that no debt relief program magically makes debts to away. It is the consumers ability to set aside the necessary funds to make monthly payments, AND AVOID TAKING ON ADDITIONAL DEBT that is the key to success in debt relief. Credit card companies can agree to reduce your interest rates, and waive fees and penalties, but it is your responsibility to make the behavioral changes necessary to get off the debt treadmill.
If you do decide that debt management via credit counseling is right for you, it is important when choosing a credit counseling service to make sure you pick one that has a Better Business Bureau rating that is positive.
Finally, all Californians should be aware that debt relief programs will likely impact your credit. So, if this is a concern of yours, ask your debt relief specialist how debt relief could affect your credit, as well as how much money you are likely to save via debt relief, and how long the time period will be for you to realize those savings.
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