Clearing up some debt confusion
There’s confusion these days when it comes to dealing with unsecured consumer debt. Most people don’t understand the differences among debt consolidation, counseling, settlement and elimination. They’re looking for a magic wand to wave to make their debts vanish into thin air.
Understanding the differences among consolidation, counseling, settlement and elimination will go a long way toward helping you figure out how to pay off your debt.
Debt consolidation. This means taking out a new loan to pay off your smaller debts, thereby ending up with one new payment that is less than the sum of the previous debts’ monthly payments. This new loan might be from a bank, your 401(k) plan or an individual, or it might be a new credit card. Generally, new debt is not the answer to old debt. This method is unlikely to get you out of debt any faster, save you money, or reduce your payments. In fact, it could make things worse. Most people run up the old debt again and find themselves in twice as much trouble.
Debt settlement. This also is known as debt negotiation and debt elimination. Companies advertising this service on television and radio make outrageous promises that, for a fee, they will help rid you of your debt for as little as half the amount you owe. Here’s how this scam works: You stop paying your bills, which trashes your credit scores. Once you are delinquent, your hired ‘’professional'’ approaches your creditors with an offer to pay far less than you owe. You run the risk of being sued by your creditors or defrauded by the debt settlement outfit. The Internal Revenue Service also may get involved at some point because the difference between what you owed and what you paid becomes taxable income.
Free Debt Consolidation Information
