What different methods of debt consolidation are there?

There are two primary methods of debt consolidation: 1. Debt negotiation (also called debt settlement) and 2. Debt consolidation. Within these two methods you will find many different tactics, techniques, and practices. If you have the time and skills, you can handle either method yourself, or you can find a debt help professional to assist you.

What is debt negotiation?

Debt negotiation is the process of reaching an agreement with creditors to take less than the full amount owed in exchange for a full release. Naturally creditors are reluctant to do this as long as they have a good chance of recovering the full amount owed. Normally this reason will be a demonstration that there simply is not enough income to pay all debts, coupled with a real possibility that the debtor may file bankruptcy and leave the creditor with nothing.

What are the pros and cons of handling the debt negotiation yourself?

You can do this negotiation yourself, maintain your own spreadsheet and present the evidence for a settlement yourself. This is obviously cheaper than hiring someone to do it, and you retain total control of the process. On the other hand, most debtors do not have the training to present a strong case for settlement, and are rarely able to be objective about the process. This is a process that relies on rational analysis of financial information and an unemotional decision-making process. That is very hard to do when your assets and your credit are on the line. You can also ask for a lower rate on your credit cards.

Video: How to Call Your Credit Card Company to Ask for a Lower Rate

What are the pros and cons of hiring a professional to do the debt negotiation?

Hiring a professional to do the negotiation insures that someone who knows the type of information most likely to result in a successful settlement negotiation presents your case to the creditors. On the other hand, there are costs associated with using a professional. However, in most cases the costs will be more than offset by increased savings on debt payment.

Whether you do the negotiation yourself or hire someone, the process usually involves stopping your payments and holding them yourself, or having the professional you hired hold them. This increases pressure on the creditors because know there is some money (though not enough to pay everyone in full) and they want to get as much of it as possible. On the other hand, this increases negative (late payment) entries on your credit history. However, if you reach settlement your account will reflect payment in full, which will offset much of the negative information.

What is a debt consolidation loan?

A debt consolidation loan is a loan taken out to pay off other high interest debts with a variety of payment schedules and maturity dates. You wind up with a single payment scheduled when it works best for your income stream. Normally you will be paying a lower interest rate on the loan than on the debts being consolidated, and your credit history emerges in good shape. You need to sit down with a financial adviser to determine how much your monthly payment should be.

Video: Credit Unions vs. Banks

The loan can be from a bank or credit union, or you may be able to borrow from a whole life insurance policy, a 401K, or friends or family. Be sure that you understand the ramifications of each of these fund sources. The loan can also be unsecured, or a home equity loan. Home equity loans usually have good interest rates, but that is because your home can be sold to pay off the loan if you default.

Whatever method you use, be sure to get started now. Procrastinating on dealing with excessive debts almost always makes things worse.

Here are some companies that offer services in this area. This list is to get you started on your research, it is not an endorsement of these companies:

Superior Debt Relief 888-366-3414
The Credit Exchange 800-780-7594
Credit Solutions of America, Inc. 800-409-2389
Credit Soup 605-256-9103