Credit Counseling, Debt Consolidation or Bankruptcy: Which is right for you?
You hear a lot about credit counseling and debt consolidation these days as alternatives to bankruptcy. But what are they, and are they appropriate solutions for you?
Credit counseling is done through a credit counseling agency. You agree to pay your creditors at a new rate of interest for an extended period of time. This is called a debt management plan. You make monthly payments to the agency and the agency pays off your creditors. Your debt is not liquidated, however, creditors are not obligated to accept a new payment plan and you are not fully protected.
Debt consolidation means taking out one loan to pay off many creditors. There are companies that specialize in debt consolidation. Usually, a debt consolidation loan is an equity loan against your home. Once you use the loan to pay off your creditors, you are obligated to pay off the lender of the consolidation loan. In effect, you trade many debts for one big debt.
Is credit counseling or debt consolidation the get-out-of-debt solution for you? Or is bankruptcy a better choice? Keep in mind, neither credit counseling nor debt consolidation gets rid of your debts. Instead, they re-structure them.
As a debt relief agency, 1-800-BANKRUPT can give you detailed information to help you determine which financial solution is best for you.
Consider these points before you make a decision:
- Credit Counseling means creating a debt management plan to pay off your creditors over a specific period of time.
- • If you don't make your payments, you're back where you started and are still obligated to pay your debts.
- • Your debt management plan will usually be at a new, higher interest rate and for a longer period of time.
- • You are not fully protected. Creditors do not have to accept the plan and can keep calling you.
- • The average plan takes about 48 months.
- • Involves new fees including set-up fees and monthly payments.
- • Applies only to unsecured debts such as credit cards.
- • Does not stop foreclosures.
- • Often considered a rogue industry that takes advantage of its clients.
- Debt consolidation means taking out one big loan to pay off many others.
- • Secures the loan against an asset usually your house. Often a home equity loan in disguise.
- • If you fail to make payments, this debt can't be discharged in bankruptcy.
- • May be harder to get these days because of falling property values and higher risk of unemployment.
- • Can often cost much more than expected because of high application and consolidation fees and long period of years for payment.
- • Can often be a predatory lending tactic.
- • Often considered a rogue industry that takes advantage of its clients.
- • If you fail to make payments, you could lose your secured asset your home.
- Bankruptcy
- • All non-exempt debt is discharged. No more payments.
- • Collection agencies are stopped from harassing you.
- • You can keep your home, car and personal possessions.
- • The process is quick and easy.
- • You get a fresh start and a clean financial future.
- • All you pay are filing and affordable attorney fees.
The bottom line: Credit counseling and debt consolidation keep you in debt, bankruptcy gives you a fresh start.
A note of caution:
Credit counseling and debt consolidation are often considered “rogue industries” that routinely take advantage of their clients. If you choose to use either of these options, make sure to go through a reputable agency. Too many agencies even the so-called “non-profit” ones put their own interests far ahead of the people they're supposed to help. You could wind up paying high fees for a long time and still end up in debt.
Make a smart decision.
Call 1-800-BANKRUPT now to set up a free, no-obligation consultation and sleep better tonight!
