Debt Consolidation vs Credit Counseling

Gibran Selman

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Debt consolidation is a type of loan incurred to repay existing loans. If a debtor has too many loans and outstanding credit card dues, he or she faces the risk of going bankrupt. If bankruptcy is reflected on a debtor’s credit history for several years, it will make him ineligible for any fresh loans. Generally, loans such as credit card loans are unsecured loans and attract high interest rates. Through a debt consolidation loan, debtors can convert all such debts into a single payment system with low interest. This amount is then distributed among all the creditors by the lender. Several credit card companies also offer debt consolidation programs, wherein debtors can transfer all their credit card balances to one credit card. These credit card companies often charge no or low interest for a certain period for motivating customers to apply for debt consolidation.

As the rate of interest on a debt consolidation loan is often low, the amount of monthly installment is also relatively less. Many financial institutions also offer tax benefits on the interest paid on a debt consolidation loan. However, the loan period of a debt consolidation loan is generally long. As such, the debtor may end up paying much more than he actually owes. Debt consolidation loans that are secured against the debtor’s property are the ones that have the lowest interest rates. In the event of failure to repay the consolidated loan amount, the property can be confiscated. Hence, a debtor must carefully weigh the pros and cons associated with debt consolidation loan.

Several financial institutions offer online debt consolidation programs to help debtors to research, and opt for a suitable program. Through an online debt consolidation program, debtors have to make just one payment online per month. Many debtors prefer online debt consolidation programs, as they can collect information, make payments and manage their debts from the convenience of their homes.

With an increase in both the number of companies offering debt consolidation loans and the number of schemes offered by them, it has become very difficult to select the most appropriate loan. This makes it necessary to contact credit-counseling agencies for finding out the best ways of reducing debts and for planning future financial goals. Debtors can seek professional advice from reputed credit counseling organizations before choosing the consolidation program that works best for their specific situation. These organizations have a panel of credit counselors who are experts in consumer credit and debt management. Credit counselors evaluate the financial situation of a debtor and accordingly suggest a suitable debt consolidation program.

Debt relief counseling agencies guide their clients to manage their debt successfully. Most of these agencies also help in loan consolidation. They assist their clients to make repayment plans and plan financial strategies. Many debt-counseling agencies also offer debt management services to their clients. They can provide personal loans to their clients to pay off their existing debt. Although, this may provide temporary relief, it is not advisable as most personal loans come with a very high interest rate. Many people have the habit of withdrawing huge amounts from ATMs against their credit cards to clear their debt. However, this will only replace a debt and not eliminate it. Ideally, it is advisable for people to make efforts to repay all their loans at the earliest to avoid financial hassles.

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