This consumer is having some difficulty with the amount of debt that he and his wife have racked up. They owe $49,000 mostly on credit cards which carry a very high interest rate. They have been meeting the monthly payments, however with the amount of interest they are charged, most of the payment goes towards interest charges and very little to reducing what they owe. This is pretty typical of credit card debt and most consumers who find themselves in this position. They want to know whether debt consolidation vs debt relief programs are better for them.
The straight forward answer is that for most consumers, debt consolidation is the better solution. Before we explain why, we will explain what each one involves so that readers have a proper understanding of each.
Debt consolidation involves negotiating a new loan at a lower interest rate and longer term usually. The rate and term will depend on the consumers credit rating and whether they can offer anything as collateral such as equity in a home for example. Their monthly payments will be much lower, their total interest paid will be much lower and more money will go to reducing what they owe each month. The proceeds of the new loan will be used to pay off their existing debt.
Debt relief programs involve hiring a company on their behalf to negotiate with the companies they owe money to. These companies will negotiate a lower total amount owed and hopefully a better interest rate, but not always. Again the terms depend on the consumers credit rating and the ability of the company they hired to negotiate for them. These companies that provide this service also charge fees for their service which is added to the debt that the consumer owes.
Debt consolidation is a great way to proceed since it demonstrates a consumers willingness to deal with his or her debt, they pay less interest, when it is paid off in the end your credit rating will improve and you have one payment to deal with each month.
Debt relief service on the other hand can result in lower amounts in total owed, however the credit card companies in this consumers example may file a report against their credit rating. This is a black mark on their credit rating which will impact their ability to borrow money for many years. At the very least consumers will pay higher interest rates if they can get a loan approved at all. These companies that perform this service also charge hefty fees for the service. While they may have less debt to deal with, it may not be worth the effort with the negative impact on their credit rating.
As we mentioned earlier, debt consolidation is usually the best approach to take.
DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION
Home/Mortgage Loan Amount :: $49,000
Home Loan Application and Processing Speed (when do you need the funds):: I guess I need the funds pretty quick, but right now I am trying to decide between debt consolidation and some sort of debt relief program.
Do you currently have a mortgage? :: No
Bank Name and Branch :: Wells Fargo Bank, Alvarado St
What City/Town, State and County do you live in? :: Monterey California
Zip :: 93940
What is your employment field? :: Retail
Employment Position :: Sales Manager at a local store
When are you paid? (monthly/weekly/biweekly):: biweekly
Your credit rating to be – excellent, fair, or bad? :: fair , although I am really not sure
How did you find us? :: Looking for debt consolidation online
How are you paid? (direct deposit/paper check):: Direct deposit
Gross Amount Per Paycheck ::$ 1200
Do you agree to have this information published online, without your PRIVATE information of course? :: sure, I am just looking for information at this stage
Extra information here please (some detail):: We currently owe $49,000 in credit card debt and a small car loan. The interest rate on the car loan is not too bad, but the interest rates on the credit cards are really high and are making it really difficult to repay the principal. In the last year we have paid thousands of dollars, but our total owing has only decreased by a little more than a thousand dollars.
It is all due to the interest rate that is charged. We have heard about debt consolidation and also about debt relief programs. We are wondering which of these two scenarios is the best approach to take. What are the pros and cons and which one would you recommend that we take?
Note to Lender :: I work in retail and make a little better than minimum wage. My wife has a good job as a dental hygienist. We let our debts get away from us over the past 3 years and now owe $49,000 as mentioned above. We have paid all of our bills and rent on time, so our credit should be pretty good with the exception of the credit card debt. We want to do something about that problem and that is why we are exploring debt consolidation or a debt relief program.