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Consumers often get caught out with having numerous credit cards prior to applying for new credit. Even if the credit cards have not been used and have no outstanding credit balance on them, they can still be extremely detrimental to your overall loan servicing capacity and your credit score. In a tight credit environment such as the one we are currently experiencing, credit card consolidation seems to be the answer.

Credit Card Consolidation Program: What Is It?

In essence as the name suggests credit card consolidation is having all your credit cards with their balance rolled into one finance facility. In other words, you consolidate credit cards into one card or loan much like the debt consolidation plans we discussed previously. Consumers usually use credit card debt consolidation in order to either get a lower rate than the existing credit interest rate which they are paying on their credit cards or to fix in their existing credit card rate at a level at which they feel comfortable. In certain cases a credit card consolidation program can also be very useful if you are struggling to keep up with the minimum payments on various credit cards and would rather just make one larger repayment.

Credit Card Consolidation Help

There are a number of ways to consolidate credit cards. Some of the methods for credit card consolidation help are listed below:

• Principle Increase On Your Home Loan: In certain cases if you have unused or lazy equity in your owner occupied or investment property, you can get your mortgage provider or bank to do a principal increase for you. In this case they will revalue your property and will increase the mortgage loan amount based on the valuation. It is often best to extend the loan up to 80% of the property value in order to avoid any Loan Mortgage Insurance Implications (LMI). With the surplus drawn out funds, you can pay out your credit cards and successfully consolidate credit cards. In this credit card consolidation program, the new debt is just added to your existing home loan balance and your repayments increase slightly. This form of credit card debt consolidation is beneficial in the sense that it allows you to pay off your debt over the life of your loan and at a much lower interest rate.
• One Credit Card: If this is your chosen method of credit card debt consolidation, you must approach any one of your credit card companies and ask them to consolidate your other credit cards. Your existing credit card company, after assessing your application and if you are approved will increase your existing credit card limit. This will allow you to pay out all your other outstanding credit cards and thereby just have one credit card with a larger outstanding balance. However remember to understand the terms and conditions of the increase and also make sure that you are comfortable with the new rate of interest and the minimum payments of your credit card debt consolidation loan.
• Credit Card Consolidation Loan: Nowadays it has become very common for financial institutions to issue clients credit card consolidation loans. These loans are issued with the purpose of enabling consumers to pay off their credit card debts. These loans operate much the same as a personal loan. However consumer might want to note that the interest charged on these credit card consolidation loans is lower than that previously charged on your credit cards.
• Credit Card Consolidation Programs: In case you are unsure about what your course of action should be to consolidate credit cards, approach your bank or financial institution and talk to them about their credit card consolidation programs, if any. These credit card debt consolidation programs are designed to take into consideration your personal circumstances and create a credit card consolidation plan based on that. These programs help reduce your interest repayments and consequently pay off your credit cards.

As we have seen, credit card consolidation has its own advantages. However, prior to considering credit card consolidation it is advisable that clients seek financial advice and take into consideration their own circumstances.

References:

1. Knee Deep in Debt – Federal Trade Commission

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More and more consumers nowadays are looking for debt settlement services as an option for debt consolidation. It is essential that consumers understand the process that is debt settlement and the impact it can have on your credit report. Debt settlements essentially involve negotiating with creditors and third parties, a part of the total debt obligation owed to them. In essence creditors are paid a part of the total debt in exchange for them foregoing a larger portion. This however is a last resort option prior to filing for bankruptcy and creditors would rather recover a part of the debt than nothing at all.

Debt Settlement Negotiation: How It Works

It has been observed that nearly one-third of the 1.5 million bankruptcies that were reported last ear were on recent credit. Historically it has been noted that certain consumers live off credit. They borrow from one creditor to pay the other. This of course is a flawed process as it eventually comes unstuck. The debt settlement negotiation process can take as little as one year or might last up to three years. The process for debt settlement involves informing your creditors that you are dealing with a debt settlement company and that all debt settlement negotiations must flow though that channel. There is also a wait owing to the fact that creditors need to make up their minds with regard to whether or not they will accept the offer.

During this time consumers are needed to sign a contract with the Debt Settlement service giving them “Limited Power Of Attorney” to act on your behalf. Typically, during the process for debt settlement you will need to deposit funds, on a monthly basis into a “settlement account” and this is used to meet creditor obligations.

Debt Settlement Company: Advantages of Debt Settlement Negotiation

If your debt is spiraling out of control, you probably need to employ a debt settlement company for debt settlement purposes. Listed below are few advantages of debt settlement:

• With debt settlement, the entire debt can be satisfied without actually paying the entire amount.
• Debt settlement usually absolves you of any adverse comments on your credit report.
• Debts which have been resolved through the debt settlement process with a debt settlement service are no longer subject o collection agencies or legal actions.

Debt Settlement Negotiation: Disadvantages

While debt settlement negotiation has its upside, the process for debt settlement has certain negative aspects too. The flip side of debt settlement is as follows:

• Debts which have been settled by using a debt settlement service appear as settled debt on your credit report as opposed to being paid in full.
• In certain situations collectors may on sell the remainder of the debt owed by you to another collection agency if you do not have something in writing from the previous collection agency.
• Usually any savings on the debt owed is considered as revenue and is reported to the IRS.
• Only if consumers have a negative networth can they avoid taxation. Collection agencies must submit a 1099-C form to the IRS for any debt forgiven which is over $600

Debt Settlement Negotation: Impact On Your Credit Report

It is a fact that you will experience a bit of a negative impact on your credit report with a debt settlement negotiation service. However it must be kept in mind that this is far better than having to declare yourself bankrupt and facing the long term implications of a negatively impacted credit report. Typically with debt settlement or a Third Party Assisted (TPA) debt settlement service, you can get rid of your debt obligations in as much as 36 months. On the other hand if you were to declare yourself bankrupt you would not only negatively impact your credit score by about 240-280 points but would also have a public record of your bankruptcy and would have it sit on your credit report for over 7 years.

Hence it is essential that consumers understand fully the implications of a debt settlement service and their importance as a credit repair service. While debt settlement has a number of advantages it also has a down side. Before making a decision consumers should seek legal advice as to the best option available and suited to their current situation. It is of essence that consumers take the necessary precautions to ensure that they maintain a healthy credit report as far as possible.

References:

1. High-fee debt settlement – Consumer Reports
2. Debt Settlement – Debt Consolidation Care

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With thousands of Americans struggling with debt issues, debt consolidation plans have become a means to get out of this never ending pit and improve your credit rating score.

Debt Consolidation Vs. Debt Management  For Better Credit Rating

A debt consolidation plan, to improve credit rating, consists of taking out a new all inclusive loan to pay off several existing loans in order to make payments more feasible. An example would be taking out a second home mortgage or a home equity line to pay off say an existing mortgage, a vehicle loan and a student loan. However, you must remember that the debt consolidation plan does not reduce your initial balance, it just consolidates it.

A debt management plan is usually devised by debt management services who negotiate the loan terms with your creditors and attempt to reduce your interest rates and payments. However, if you apply for a new credit line later, you might have some trouble. In most cases, using a debt management plan is treated the same as filing for chapter 13 bankruptcy. Creditors become wary of lending more money to you as they perceive you to be overburdened already. While the debt management plan might help you lower your debt, it comes at a price.

Debt Consolidation Loan To Improve FICO Credit Rating

A debt consolidation loan does nothing to harm or improve your FICO credit rating in the short run as the credit agencies look at your entire credit line as a whole which remains unaffected.  However, if you make payments on this new loan consistently then eventually the debt consolidation plan will help you improve your credit rating. Besides improving your FICO credit rating score, a debt consolidation loan reduces the number of payments you need to make and groups them into one single payment. Thus it becomes easier to keep track of and make the payments on time.

Debt Management Without Debt Consolidation Loan

Debt management is possible without having to apply for a debt consolidation loan. In such a case, a debt settlement might be reached with the creditors in order to decrease your debt. It may reduce your Interest rates, minimum monthly payments and future late fees. In some cases this leads to a major setback to your credit rating score but unlike a debt consolidation plan or loan, you do not take on further debt to do so. It eventually helps you to pay off your debt much faster and pay lesser than you owe currently.

Improve Credit Rating Score With Debt Settlement

A debt settlement or debt consolidation plan can be beneficial to one in many ways in order to improve your FICO credit rating score. The main aim of these service providers is to help you lead a debt free life eventually. A Debt settlement/Debt consolidation plan could help you rebuild your credit rating score by:

• Decreasing interest rates drastically for the balance owed
• Eliminating future late fees
• Creating one easy payment making it easier to keep track of
• Paying off your debt faster.

Even though Debt Consolidation/Debt Management  plans come with their pros and cons, if chosen correctly they might prove beneficial to you to become debt free and eventually improve your credit rating and create a good credit report.

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