Your Comprehensive Guide to Debt Consolidation
What is Debt Consolidation?
Debt consolidation is a process that involves retrieving a loan to pay off other outstanding loans, debts or bills.
How Do Debt Consolidation Programs Work?
With this process, debts are combined into one, hence the term consolidation. To ease the agony of making multiple payments to different companies, debt consolidation programs require only one payment to be paid monthly. This payment is made to the lender that has loaned you the money to pay off other lenders.
What are the Benefits of Debt Consolidation?
This form of debt refinancing is beneficial for many apparent reasons. They are listed as follows:
Manageable Monthly Payments
As mentioned prior, manageability and simplification are two of the most attractive advantages of debt consolidation. Instead of becoming overwhelmed with keeping up with monthly payments for various debts, combining them into one alleviates the stress. Many often lose track of due payments and are subsequently deterred from paying them off. They often feel as though it is too much (or too late depending on how many payments they have missed) to allocate money to these debts.
Lower Interest Rates
By consolidating your debt, you can take advantage of a lower interest rate. A reduced interest rate will assist you in paying your debt off efficiently and in a manner that is conducive to your finances.
Overcome Debt Sooner
With a lower interest rate, this permits lower monthly payments. This, of course, stems from the lack of money that is being charged to you, the borrower for the requested loan. The combination of both the interest rate and monthly payment, allows debtors to pay off their debt faster. It also allows them to save more money in the long run.
How Does this Affect my Credit Score?
A debt consolidation program has its advantages and disadvantages. However, the benefits far outweigh its drawbacks. It is important to note that debt consolidation involves acquiring a new loan or new credit card to pay off other multiple loans. Although combining debt as one, money is still being borrowed and this can affect your credit score. An inquiry has to be made into your credit, and this can cause your credit score to fall by a few points.
Your credit score is founded on your credit utilization, which is the debt you currently have such as your credit card balance, versus the credit available to you, much like your credit card limit. For example, if you have a credit card with a $10,000 limit and you owe $6000, $10,000 is the total credit available to you, and $6000 is the balance you carry and virtually owe the lender.
If your credit card has reached its full limit, acquiring another loan, specifically a credit card loan can lower your credit utilization and potentially benefit your score. Overall though, the idea is not to reach your credit limit on your credit cards. This can reduce your credit score. Thus, if your debt consolidation solution is to open a new credit card and transfer outstanding balances onto another, be sure not to max out the new credit card, as this can have a detrimental outcome.
Despite this disadvantage, good debt consolidation programs can, on the other hand, notably improve your credit score. This is because they pay off your outstanding debts, leaving you with only one monthly payment. It is simple and efficient.
Depending on the size of your debt, a sizeable loan might be better suited for debt consolidation. This keeps everything streamlined and avoids the pitfalls attached to a credit card loan. Similarly, it allows your credit score to increase overtime.
Types of Debt Consolidation
As mentioned above, a balance transfer involves the use of a credit card. What it entails is quite simple. A balance owing from a previous credit card is transferred and consolidated on another. This form of consolidation is typically done to take advantage of a low-interest rate on a credit card while saving interest repayments on another.
Institutions offering this solution, sometimes present a preliminary offer of 0% interest on a credit card balance transfer. Attached to this proposal is a transfer fee, which is usually a percentage of your complete balance. For a short span of time, sometimes a year, interest will not be incurred on your balance.
However, to benefit from a low-interest rate, payments must be made on time consistently. If a payment is made tardily, you will lose the introductory interest rate offered to you initially, and you will then incur interest.
To take advantage of balance transfers effectively, the balance must be paid off as much as possible. This repayment must be made before the introductory offer is over. Otherwise, you risk the chance of paying interest on the balance owing on the card.
It must be mentioned that although obtaining a card with a 0% interest rate is enticing, you must avoid using the card. The goal is to pay off your debt and decrease your credit utilization. Using the card defeats the purpose of making the transfer and working towards debt repayment if you are then going to increase the balance.
Peer to Peer Lending
This form of lending is entirely new but very beneficial. It enables persons to borrow money from individuals that are willing to invest their money. This is done through peer-to-peer lending companies. These establishments connect borrowers with persons who are eager to provide money for others to borrow.
By doing so, the lender receives a return on the money invested. The benefit for the borrower is that they are given a loan with an interest rate that is lower and incomparable to what they could receive anywhere else.
For the lending company that has provided this connection, they receive payment as well. They charge realistically for their services and retain a fraction of the repayment amount for themselves. The most considerable benefits to this type of loan are the payment term, and the low yet fixed interest rate that is usually ascribed to them.
Home Equity Loan or HELOC
A home equity loan is quite self-explanatory. It involves using the value of your home, or its equity as a guarantee. Depending on the terms, this implies that if the loan cannot be repaid, your home will be subjected to foreclosure.
However, the size of the loan provided is dependent on the value of your home. An appraiser who assesses the condition, and overall worth of your property, confirms this. The institution you are seeking to borrow money from typically selects this appraiser.
The benefit to this type of loan is that it offers an interest rate that is usually lower than other lending solutions. Many prefer the flexibility of this loan as it allows them to make minimum monthly payments, and use only as much as is required from the loan. Also, when the balance owing on the loan is paid down, borrowers can again withdraw the money for other expenditures.
Debt Consolidation Company
A debt consolidation company is an institution other than the bank a person seeking to amend their debt would elicit services. This company provides the individuals with the resources required to combine their debts. A debt consolidation company offers the loan to the borrower, and the expectation is that they will pay the money back on a monthly basis.
Many companies offer debt consolidation to consumers. Below is a list comprised of the top ten corporations providing accessible services for debt repair. These companies and their debt consolidation programs’ reviews are also listed from trustworthy sources. See them as follows:
National Debt Relief
Since 2009, National Debt Relief has been helping clients repair their debt. Situated in New York, NY, they have educated their clients and offered debt solutions such as non-bankruptcy and consolidation options. They have made a decent name for themselves in the debt consolidation industry and continue to provide excellent services.
They have received an A+ rating from the Better Business Bureau along with a 4.92 out of 5 stars rating based on customer reviews. On Trust Pilot and Top Ten Reviews, their score remains consistent with a 9+ star rating out of 10 on each site. An online company named Consumer Affairs awarded National Debt a 4.9 out 5 stars rating along with their approval. The only drawback mentioned about this company was their poor customer service. They seem to offer the best debt consolidation programs. Read Review>>
Accredited Debt Relief
Accredited Debt relief offers one of the top debt consolidation programs in the United States. They provide a free consultation to their clients where they assess your financial situation and determine whether consolidation is the best option for you. If deemed suitable, you are assigned a personal account manager. Accredited Debt Relief makes it simple for debtors to repay their outstanding bills with just one monthly payment.
They do not require immediate payment, and it takes to 2-4 years for the program to be completed. Accredited Debt Relief offers services in 49 states and provides credit card debt consolidation programs for those requiring it. Unsecured loans and medical bills are also eligible for debt reconciliation. However, to qualify for the program, you must have at least $7500 in debt. Read Review>>
New Era Debt Solutions
New Era Debt Solutions is widely praised for its dependable services. It has been deemed a reliable company that is experienced and offers sound advice to debtors. They are primarily recognized for their professional and honest staff.
New Era Debt Solutions is respected for offering legit debt consolidation programs that are effective. Based on information provided by Top Ten Reviews, New Era Debt solutions earned 81 percent for their of level honesty with customers. However, their average for debt consolidation services was inferior to other debt companies by 5 percent.
Despite the absence of essential accreditations such as AFCC or USOBA, according to BestCompany.com, they have still received an A+ rating from the Better Business Bureau. New Era does not offer student debt consolidation programs, or debt assistance for car loans, home mortgages and other unsecured loans. Read Review>>
Pacific Debt Inc.
Although located in California, Pacific Debt Inc. offers debt solution to individuals from various locations in the United States. They provide esteemed services and can help clients consolidate their loans with low monthly payments and low-interest rates. Based on their level of customer service, they have obtained an A+ rating.
Pacific Debt assigns a specialist to assess your financial needs and the best options available to you. To qualify for their program, you must have a minimum debt of $7500. Before enrollment, Pacific Debt will ensure that you can manage monthly payments during the program. After your registration, they begin negotiating with your lenders. The program lasts for 2-4 years. Read Review>>
Freedom Debt Relief
Freedom Debt Relief provides a national debt consolidation program in America. Much like many other consolidation companies, they encourage you to complete a form online detailing your financial situation. Once completed you are contacted by a representative that guides you throughout the program. Once confirmed that debt consolidation is right for you, forms are to be signed to begin the process.
The advantage to this company is that they offer a dashboard that details your advancement to debt freedom. Thus, you can keep track of your progress. Countless people have benefited from this company. They are dependable. Read Review>>
Since 2006, Debtmerica has been offering debt reconciliation services to many clients. A simple peruse on their website will unveil customer reviews that speak highly of their credit card and debt consolidation programs.
However, although their website backs their credibility, their, debt consolidation programs do have pros and cons. Trust Pilot, an online review platform, awarded Debtmerica a 9.2 out of 10 rating. Customer reviews also speak of how valuable and successful their services are time and time again.
ConsumersAdvocate.org rated their services a 4 out of 5 stars. However, for the most part, their services appear to be quite reliable. Read Review>>
As long as you have at least $7500 in debt, Cura Debt will willingly assess and rectify your debt situation. Once you have completed their form online, they will evaluate your debt and assign you a representative.
The disadvantage to this company is that they charge upfront fees. You should expect to pay nearly 20% in fees and an account maintenance fee monthly for the upkeep of your account. You can anticipate debt freedom within 2 to 4 years. Another great feature to Cura Debt is there debt consolidation affiliate program, which allows clients to earn money for referrals.
Top Ten Reviews dismisses their website for being uneasy to navigate whereas Better Business Bureau has graded them an F for their services. Read Review>>
Premier Debt Help
Depending on your location, Premier Debt Help requires a minimum debt amount of $5000, which is comparable to others that require $7500. The process is quite similar to other companies in that an online form must be completed with your financial details. Once provided, a specialist contacts you and will guide you throughout the program. Their debt repair program lasts for 12-48 months and is contingent on your financial situation.
Premier Debt Help has their accreditation such as is IAPDA. IAPDA offers training and certification for debt conciliators and ensures that they abide by FTC rulings With such a qualification, you can be certain that they will work relentlessly to guarantee you receive exceptional results. Read Review>>
Superior Debt Relief Services
Unlike the other companies mentioned in this list that require $7500 to qualify, Superior Debt Relief Services expects clients to have at least $10,000 in debt. However, they are very qualified to deal with debt consolidation as they are backed by 20 years of experience and excellent customer reviews.
Despite being in the industry for so long, they lack specific accreditation and operate in only 28 states. However, they do not charge upfront fees and offer a money back guarantee if you are dissatisfied with their services.
If you have a significant amount of debt, they are a great company to work with as they have lawyers on staff to assist you. They have received an A+ rating from Better Business Bureau. Read Review>>
Oak View Law Group
As long as you have $1000 of debt in unsecured loans, you are eligible for Oak View Law Group’s debt consolidation package. Unlike some debt arbitrators, they offer payday loan debt consolidation programs. Backed a group of expert lawyers, you can anticipate that you will be appropriately represented.
The length of time for debt consolidation is less than other companies and ranges from six months to 48 months. Oak View Law Group offers free consultations to its clients but tax 25% of the debt amount that is consolidated. An additional $50 is charged each month as a consultation fee.
Once considered qualified, paperwork is sent to for completion, and you can manage your account on their website. According to Top Ten Reviews, they are upheld as one of the best debt consolidation companies in the America. Read Review>>
Chase Debt Consolidation Programs Vs. Bank of America Debt Consolidation Program
Bank of America
As one of the largest banks in the United States, Bank of America has helped millions of people build their savings and also repair their debt. This institution offers a program known as the Clean Sweep Program. It is a form of debt consolidation providing an interest rate as low as 8%. No collateral such as your home is required to obtain the loan. There is no annual fee or prepayment penalty, and after submitting your application online, you will receive a response promptly. The disadvantage to this loan is the variable APR and the transaction fee of 3% that is charged for withdrawals. Overall, their program seems to be quite helpful.
Chase Bank’s program for debt consolidation involves opening a Home Equity Loan (HELOC). As mentioned previously, this type of loan requires debtors to use their home as collateral. On their website, a series of question and answers are listed that will let you know whether you are eligible for the program. If you do not own a home, you do not qualify for their program.
Which Free Debt Consolidation Programs Are Available?
There are some non-profit debt consolidation programs available. Non-profit programs are admired for their ability to negotiate with creditors effectively. They can eliminate multiple bills into one monthly payment. Admirably, they are also qualified to eradicate additional fees and lessen the interest rate. Non-profit organizations offer solutions that are cost-efficient and depending on the severity of your financial situation, charges can be repudiated. Non-profit agencies are admired free debt consolidation government programs.
American Consumer Credit Counseling (ACCC) is a non-profit organization that has been offering debt reconciliation services to many individuals for over 22 years. With an A+ rating from the Better Business Bureau, they appear to provide dependable and reputable services.
Which Debt Consolidation Programs Are Government Approved?
The government believes in the assistance that credit counseling services can provide. It is suggested on USA.gov that to access services that are cost-efficient and free, institutions such as credit unions, extension offices, religious organizations, and non-profit agencies should be considered. These associations are most likely to offer free debt consolidation government programs.
However, being mindful of their qualifications and ensuring that they are backed by following is crucial:
There are government debt consolidation programs that are available. The government approves of institutions that are accredited by the associations mentioned above. Organizations providing these services are expected to abide by strict rulings. This expectation is offered as a protection to consumers seeking debt repair services.
By accessing the sites for National Foundation for Credit Counseling (NFCC) or Financial Counseling Association of America (FCAA), you can view qualified institutions.
Government Sponsored Debt Consolidation Programs – Where Can I Find Them?
By accessing the U.S. Trustee Program on the U.S. Department of Justice website, you can view a list of organizations that are government approved. You can also use this portion of the site to verify whether the government backs a company of your choice.
The U.S department of Justice oversees federal debt consolidation programs but primarily manages financial cases about bankruptcy. They also supervise trustees working as apart of the U.S Trustee Program.
Military Debt Consolidation Loan Program – What is Available?
According to Service Members Civil Relief Act (SCRA), military members of the armed forces are eligible for exemptions from foreclosure eviction, and bankruptcy. They are also pardoned from high-interest rates on mortgage payments, and outstanding credit card bills. For, more information, contact the U.S Armed Forces Legal Assistance as they can provide general legal services and relevant financial information.
Do Debt Consolidation Programs Work? What is the Best Debt Consolidation Program?
Depending on how committed the debtor is to renouncing their debt, the right debt consolidation program will work. Keeping up with monthly payments and avoiding taking out advances is beneficial. Adhering to these rulings will accelerate your freedom from debt.
The best debt consolidation program is contingent on your individual needs. Whether you are a military serviceman or a victim of student debt, there are exclusive debt reconciliation services available for you.