Consumer Counseling: The Different Departments of Debt Consolidation

April 28, 2010 - PRLog -- There are many means to debt elimination these days outside traditional debt payback plans. In your path to financial freedom you’ll need to first evaluate what DMP is right for you. This would depend on your current financial situation and long term creditor goals. Understanding the different DMPs available will guide you in the right direction to financial freedom.

Credit Counseling Debt Consolidation
Start by finding a nonprofit you can validate with the BBB. Services come with little to no cost, including free budget counseling, financial educational information, credit report reviews, and a free debt analysis. This is the most common DMP (Debt management Plan) available to consumers who are current or past due less than 6 months. Account terms are modified including one low monthly payment, reduced fixed APRs, the stopping of fees and a continued positive payment history as payments are made each and every month as received to help improve your credit over time.

Is credit counseling debt consolidation your ticket to financial freedom? If you have any plans of utilizing your credit in the next 7-10 years this is the way to go. The qualification process from a reputable nonprofit agency starts with a budget counseling session outlining your debt to income ratio on a monthly basis. This is done to assess an affordable monthly payment and to establish a due date that works comfortably around your other bills and pay schedule. The payment plan is based on the total amount you owe and is geared to get you to be debt-free in three to five years.

Debt Settlement Debt Consolidation
The Kit Kat of DMPs, debt settlement plans give you a break on the total debt to payback. These plans are going to cost you much more than a candy bar though and rebuilding your credit score will be harder than working off that delicious Kit Kat. Debt settlement plans are the guys offering to cut your debt in half, pay back less than you owe, etc. This is the plan where you stop paying your creditors and allow the accounts to go into a charged off status where they are then sold to collection agencies. Instead of making your payments to your creditors you make payments to the agency. Funds are placed in an escrow account and built up over time to propose settlements to your creditors.

So is debt settlement your solution for salvation? If you are not concerned with your credit for the next 7 years a settlement plan could be your solution. Settlements damage your credit as the accounts must charge off before settlement negotiations even begin. If you know you have accounts that are already in a charged off status they cannot hurt your credit any worse and a settlement plan could eliminate the debt for less so you can move on and begin rebuilding your credit. Settlements are also a good means to avoid bankruptcy.

Consolidation Loans
Most often confused with credit counseling debt consolidation, a loan is just that – A LOAN. Taking out a consolidation loan is just like opening another credit card. The lender is panting and salivating in their patient wait for you to drop the ball and make a late payment so they default you, jack up the interest rate and dosey doe you go. Good job. Transferring debt is like robbing Peter to pay Paul. Guess what? Paul aint buying it and Peter landed his butt in jail for fraud. The idea here or lack thereof, is to secure a better interest rate while having the convenience of one monthly payment.

The problem is many of us can’t qualify for these consolidation loans. Officials say only 1 out of 500 American consumers qualify for a consolidation loan at a reasonable rate. You must have great credit to obtain a consolidation loan at a low APR. Consolidation loans are for the same people who actually CAN qualify for those Lexus no down payment plans and $179 a month lease payments.

No matter what solution fills your financial freedom flask it starts with speaking to a nonprofit credit counselor. Finding one online is easy, but again, verify the agency with the BBB as there are a lot of scam operations out there looking to prey on desperate people deep in debt. Speak to a certified credit counselor today to see what option best suits your situation and long term credit goals. Call a nonprofit credit counselor at 800.905.1563 or visit our website freedomdm.org and complete our contact request form. Can’t talk during the day? Try our LIVE CHAT feature and speak to a counselor live online. You can improve credit and get out of debt with our nonprofit counseling services. Call us today for a free budget analysis, credit report review, and debt consolidation quote. You can be debt free; Freedom Debt Management, Inc can help. / x Michael Brazier

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Certified credit counselors work with potential clients to assess their current financial situation and determine what their best option may be.