DEBT CONSOLIDATION FAQ'S

1) What is debt consolidation? Debt consolidation is a restructuring of current debt, under which new terms are negotiated, whereby in most cases payments are lowered and interest rates are reduced or possibly eliminated, with no negative effects to your credit. A debt consolidation service has preset arrangements with almost all of the major creditors (mostly credit card companies, medical and collection companies) where the interest rate is roughly predetermined. When you call a debt consolidation company, they reference this creditor rate sheet and then give you a new payment based on the lower interest rates they have with that respective creditor. Typically, this payment is lower than what the credit card companies offer to the general public and more often than not, you will save on your monthly payment. One caveat of the debt consolidation plan is that you will be asked to cancel all credit cards that are included in the program. Debt consolidation can also be in terms of a loan - a loan that would be secured by an asset - typically your home. In most instances, it doesn't make much sense to add more debt just as you're trying to clear up existing debt, especially when it comes to putting your home at risk.

2) What is debt negotiation? Debt negotiation (also known as debt settlement) is a negotiated lowering of the debt owed. During your participation in a debt negotiation program, no payments are made to your creditors. The debt negotiation company then either takes monthly payments from you which it places in a holding account. or you place the monthly payments in your own account. During this process of accumulation, the debt negotiation company is handling all of your creditor calls and negotiating with your creditors for a lower payoff amount, typically in the 40-50% range. Once a settlement is reached with your creditors, a lump sum payment is made to them from the funds in your holding account. Most debt negotiation companies require the creditor to mark the credit report as "paid in full" so it doesn't show up as a negative on your credit report once the debt is settled. Reducing your debt by half sounds great, but there are some downsides. First, your credit will be terrible while you're in the program. Secondly, if any of your creditors doesn't agree to settle (which is very rare), then you will end up with bad credit, which can stay on your credit report longer than bankruptcy.

3) Is debt consolidation or negotiation the same as bankruptcy? Absolutely not! Debt reduction is for people who want to honorably pay back their creditors but because of financial hardship, need the help of a program and their creditors to agree on a reduction in what they owe. Bankruptcy is designed to absolve you of all your financial obligations. It is usually the option of last resort and is not something to be rushed into. Bankruptcy carries with it a significant social stigma, and the devastating effects on credit lasts up to 10 years. Even when you can obtain credit, such as for a home or car, you are likely to pay higher rates. Over the life of a home loan, the added interest can add up to more than the amount of the debt discharged in bankruptcy. Debt settlement is bankruptcy prevention.

4) Why do creditors agree to reduce debt? Your creditors are willing to work with us because of the tremendous amount of debt that exists today. Creditors prefer that you seek out the help of a debt reduction company as opposed to filing bankruptcy like millions of Americans do. Because if a debtor files for bankruptcy, often times the creditor will be left with nothing. In other words, "some money is better than none at all".

5) Is my financial info kept private and confidential? Yes. Only people authorized by you will have access to your debt reduction account. Creditors will simply be advised that we are assisting you with your finances. In addition, we do not report to the Credit Bureaus, so you don't have to worry about other creditors seeing that you are being assisted with your unsecured debt.

6) What is the difference between secured and unsecured debt? An unsecured debt relies only upon your promise to repay. The most common types of unsecured debts are credit cards, department-store cards, medical bills and personal (signature) loans. A secured debt relies upon collateral or security for a secondary source of repayment (if you fail to repay). The most common forms of secured loans are home loans (first mortgage, 2nd, and equity line-of-credit) boats, RVs. Once default takes place, the creditors recourse is usually to foreclose on a home or to reposes a vehicle.

7) How long does it take to become debt free? That obviously depends upon the size of the debt, but also ultimately upon how much of a monthly payment you can afford. Most plans typically try to absolve the debt within a 18 -24 month time span. Make sure to choose a program (like those offered within this site) that doesn't impose a prepayment penalty for earlier reduction of debt.

8) How do I get started in a debt reduction program? It's easy! Just click on one of the recommended debt consolidation services listed within this site and fill in the appropriate form. Unless you are considering consolidation with a loan, no credit checks are needed; so there's no worry about employment, reference verification or credit history assessment.

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