Choosing Between Debit Consolidation and Debit Elimination

  • With so many companies making different claims about how they can reduce your credit card debt, it can be confusing to know whatever you want, and are getting, debt consolidation or debt elimination. This depends entirely on your situation and what you are trying to do.

    Credit card debit consolidation usually involves combining the different amounts of debt you owe on the various cards into one amount. You can then apply to a bank specializing in debt consolidation loans for the total amount. You use this new loan money to pay off all the other debt and then just make the one monthly payment on the new loan instead of some smaller ones. You can also work with a company to do this, sending them one payment each month and they will divide it among the various creditors.

    Debit elimination actually decreases the amount you owe. Usually you must be behind in your payments to the credit company and either you, or someone from the program you are working with, negotiates a lower repayment amount. Often the lower sum must be paid at one time rather than in smaller monthly payments.

    While it may sound better to have less money to pay off, getting behind in payments hurts your credit history and makes it harder to secure additional credit in the future. If you have good credit and you are generally keeping up with your payments, consolidation can save you money and be a better option. Credit cards often have variable interest rates and steep late-payment fees. They also may have several different due dates. Getting just one loan at a set interest rate can save a lot in interest, especially if you keep your monthly payment the same so you pay down the principal faster. Late fees add up and the simplicity of having one payment can save a lot if you frequently forget all the due dates.

    Whichever way you choose to go, be sure to look into any lender or company you work with and know about possible additional fees. Some loans have extra fees but lower interest rates while others have no fees but higher rates. Which is best depends on how much you owe, what you want your monthly payments to be, and how long you'll be paying off the loan. Also look for government or non-profit organizations that offer free debt consolidation. They typically do not have extra fees and are more interested in setting up a program and payment schedule that work best for you. They also typically offer credit-counseling that can help you not face these issues again.

    Source by Spencer Arnold

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