Home Page: Budgeting

If you are in need of debt help, you have probably come across several advertisements urging you to use their services. Before you decide which service is right for you, you should understand the differences and be mindful of your choice.

Debt Consolidation

With debt consolidation, a third party combines all of your unsecured debt into one single loan for the purposes of lowering your payments by lowering the overall interest rate. For example, if you were paying 18% interest on average on your credit cards, your new loan would have a lower rate such as 10%. This would save you 8% in interest per year and would lower your monthly payments.

If you choose this option, you will still owe the same amount of principle as before, but your payments will be lower because of the lower interest rate. The good news is that your credit rating will typically not be negatively impacted because you end up paying off all of your original debt. You should be aware that in some cases, the third party would require an asset to be used as collateral to secure your new loan.

Debt Settlement

With debt settlement, a third party negotiates with your creditors on your behalf. The third party typically negotiates a lower "settlement" amount for the overall amount of money that you will pay back. This means that you will owe less money overall. This option is not a loan and you should be aware that debt settlement might adversely impact your credit rating.

Consumer Credit Counseling Services

I would classify consumer credit counseling as broadly used term to describe organizations that use either debt consolidation or debt settlement to as a vehicle for debt help. Typically these agencies will assist people with other areas of personal finance such as credit repair and help with budgeting. Buyer beware! Many of these agencies claim to be non-profit, but you should read between the lines to see if they really have your best interest at heart. In addition, they may charge you a fee for their services.

5 Questions to ask while researching a debt service company

1. Is your service debt consolidation or debt settlement?
2. Is your service free or do I pay a fee?
3. Will your service adversely affect my credit rating
4. How long before I am out of debt with your service?
5. How many years have you been in business and in what states? (Check with the better business bureau in the state service areas)

Everyone's situation is different, but you should research, ask questions, and review all of the facts before using a service for debt help. Remember, it is your money and it is your credit rating at stake.