What is the difference between debt consolidation and Debt Counselling?
Credit counseling involves working with a financial professional to manage your debts and budget, while debt consolidation is opening new credit to pay off multiple existing debts.
Debt review is a process that is handled by professionals to manage your debt repayments, allowing you to consolidate your debt without the need to take out further loans. Debt consolidation involves taking out a loan yourself that helps you repay all your debts.
Credit counseling organizations are usually non-profit organizations that advise you on managing your money and debts and usually offer free educational materials and workshops. Debt settlement companies offer to arrange settlements of your debts with creditors or debt collectors for a fee.
Debt consolidation is generally considered a less damaging option for your credit. It may be a better choice for those with good credit who can qualify for a lower interest rate.
You may not get approved for a lower interest rate
Personal loan and debt consolidation lenders do accept applicants with less than ideal credit scores — while you'll be approved for the loan, you'll likely receive a higher interest rate if your credit score is on the lower side.
Debt counselling is a consistent system of restructuring all your debt instalments into one consolidated and affordable monthly repayment. Like any service, hiring a debt counsellor will cost you, but it's a small price to pay to get you back on your financial feet.
Loan debt consolidation is when you take out a new loan to pay off multiple debts. Four types of debt are commonly consolidated: credit card debt, student loan debt, medical debt and high-interest personal loan debt. You may reduce the overall cost of repayment by securing better terms and interest.
A credit counselor can help you. Credit counselors can help you make a budget. Credit counselors also can help you make a plan to repay your debts. Debt relief services companies might offer to help.
- SoFi. : Best debt consolidation loan.
- Oportun. : Best for borrowers with bad credit.
- Best Egg. : Best for secured loans.
- PenFed Credit Union. : Best for low rates and fees.
- Laurel Road. : Best for pre-qualification.
- OneMain Financial. : Best for fast funding.
- LendingClub. ...
- First Tech Federal Credit Union.
- When you are in debt counselling, creditors cannot take action against you.
- There is no permanent record of having undergone debt counselling.
- There is only one monthly repayment to be made.
- Your budget will meet your basic needs first before provision is made for debts.
How much debt is too much to consolidate?
Success with a consolidation strategy requires the following: Your monthly debt payments (including your rent or mortgage) don't exceed 50% of your monthly gross income.
| Debt Relief Companies | Best for |
|---|---|
| Featured partner National Debt Relief | Best for credit card debt |
| Money Management International | Best overall |
| Accredited Debt Relief | Best for customized options |
| Americor Debt Relief | Best for all unsecured debt types |
Fees for debt consolidation are around 4% with a debt consolidation loan and 3.1% with a balance transfer credit card, on average. The fees you need to watch out for when consolidating debt are origination fees on loans and balance transfer fees on credit cards.
If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.
Debt consolidation itself doesn't show up on your credit reports, but any new loans or credit card accounts you open to consolidate your debt will. Most accounts will show up for 10 years after you close them, and any missed payments will show up for seven years from the date you missed the payment.
Debt consolidation puts multiple debts into a single account to make your payments easier. Debt consolidation can lower your credit score temporarily, but your score will improve if you make payments on time. Other tools like debt management plans and bankruptcy can help you manage debt.
There are several cons to choosing debt counselling, such as: Additional cost additions: Some debt counselling companies may charge for their debt counselling services and financial assistance. It is important to note that whilst these fees are generally regulated, they still add to your overall debt burden.
If you are struggling to make your monthly debt repayments, you can apply for debt counselling with a registered Debt Counsellor or debt counselling company. This Debt Counsellor will determine whether or not you are in fact over-indebted.
Many debt management plan (DMP) providers charge a fee for their services but some don't. It's important to remember that if you don't want to pay a fee, you don't have to.
Debt consolidation loan
Banks, credit unions, and installment loan lenders may offer debt consolidation loans. These loans convert many of your debts into one loan payment, simplifying how many payments you have to make. These offers also might be for lower interest rates than what you're currently paying.
Is it a good idea to use a debt relief program?
If you're one of the millions of Americans struggling to repay high-interest debt, a debt relief plan may be an option to help you get your finances on track. But it's not a quick fix. It's a long-term solution designed to help you get out of debt over a period of time — typically several years.
- Credit, retail and department store cards.
- Home or auto repair bills.
- Medical bills.
- Utility bills (phone, electric, gas, cable, oil, etc.)
- Court judgments.
- Income taxes.
- Lines of credit.
- Other installment loans.
- Keep a record of all communication with debt collectors.
- Send a Debt Validation Letter and force them to verify your debt.
- Write a cease and desist letter.
- Explain the debt is not legitimate.
- Review your credit reports.
- Explain that you cannot afford to pay.
- Don't Wait for Them to Call. Consider picking up the phone and calling the debt collector yourself. ...
- Check Them Out. ...
- Dump it Back in Their Lap. ...
- Stick to Business. ...
- Show Them the Money. ...
- Ask to Speak to a Supervisor. ...
- Call Their Bluff. ...
- Tell Them to Take a Hike.
If credit counseling is not the best choice for your circ*mstances, debt settlement may be the answer. Debt settlement allows you to repay creditors for less than the total amount owed.
