Q: What is Debt Consolidation?

A: Debt Consolidation is a relatively new program becoming
extremely popular. The program is associated with non-profit
consumer credit counseling organizations. Although it may
sound like a debt consolidation loan, debt consolidation is entirely different.

Unlike a debt consolidation loan, your debt is consolidated
and your interest rates* are reduced without the need for a
loan. This is done through negotiating with your creditors
rather than taking on additional debt.

Debt consolidation services are a win win situation for the
consumer. The consumer gets their interest charges*
reduced, their monthly payments minimized with the
convenience of paying all their debts in one monthly
payment. By making the regular monthly payments, the
consumer will be back on the road to restoring their credit
rating.

 

Q: What is a Debt Settlement or a Debt Reduction program?

A: A Debt Reduction Settlement is a process used by both debtors and creditors to settle a debt for less than what is owed. After paying Agency fees, a typical client realizes a savings of around 40% of their original debt placed in the program.

Debt Reduction Settlements are typically offered through
third party debt negotiators or attorneys. As this is an emerging industry, there are few true professionals providing these services. While more and more agencies are evolving, it is important to deal with one that is highly skilled in the art
of debt negotiation, knowledgeable in debt collection, and who has in-house legal counsel, in order to obtain the most favorable settlement.

 

Q: What is Credit Reporting?

A: Your credit report is your personal credit payment history. Lenders use it to decide whether to grant you credit. This history is compiled and reported by credit bureaus; also called credit reporting agencies, from information received through various grantors of credit-card issuers, mortgage holders, banks, or even retail stores that offer credit for purchases.

Your credit report shows your address, Social Security Number, date of birth, how much you have borrowed through credit cards or any other types of loans including student loans and whether or not you repay your debts on time.

You may have no reason to think there is negative information in your credit report and you are probably correct. But it's a good idea to check. Credit agencies occasionally make mistakes, and if your report contains inaccurate information, the credit bureaus or credit repair organizations can provide you with their procedure for disputing credit report information.

 

Q: How is Debt Consolidation different from
a loan?

A: Debt Consolidation loans work by giving you a bank loan against your property, you then use the money to pay off
high interest credit cards. Typically, you are required to use the equity in your house as collateral. The problem is that most people who are in deep debt do not have equity in their homes and the ones that do have equity are concerned (rightfully so) about taking on more debt.

In order to reduce your debt, you need less credit, not more .Increasing debt by mortgaging your house is typically financial suicide. Many people report that re-financing with a consolidation loan or a second mortgage pushed them over the financial brink. Under these circumstances, the loan or mortgage you do obtain (if you qualify) will have a very high interest, though you will appear to be making progress, you will only be digging yourself deeper in debt.

A common myth is that debt consolidation loans are tax deductible. This is only partially true. Interest paid on mortgages that exceed the value of the house, used to repay credit cards or personal loans (called unsecured consumer debt) is not tax deductible.