Credit Card Debt Consolidation
Many Oklahoma residents who find themselves in over their heads with credit cards and other unsecured debts may be exploring available debt relief options to not only provide much-needed relief, but possibly save a substantial amount of money each month. The objective behind debt consolidation, or a debt management plan (DMP) is to combine or "consolidate" multiple high interest unsecured debts into a single, more manageable, payment each month made to a debt consolidation company. The debt consolidation, or credit counseling company then has the responsibility to distribute on time payments to each of the creditors until all debts in the program are paid off, or resolved. Before we explore the details of how a debt consolidation debt relief program functions, it's key to understand how a credit card debt consolidation debt relief program differs from a debt consolidation loan.
What is the Difference Between Debt Consolidation and a Debt Consolidation Loan?
The goals of both debt consolidation via debt management and a standard debt consolidation loan are very much alike -- get relief from high interest debts. However, the method of how this relief is achieved is quite different. In the case of a debt consolidation or debt management plan coordinated by a credit or debt counselor the objective is to gain an understanding of the total debt burden a consumer is facing, the amount of money each month that the consumer can reasonably allocate each month to payoff or pay down debts, then design a personalized plan that "consolidates" multiple high interest consumer debts into a single, more affordable, payment each month. These structured plans can help consumers resolve debts as quickly as possible, at a pace they can afford.
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A debt consolidation loan, on the other hand, involves gathering multiple high interest credit cards and other debts and paying them off all at once with the proceeds realized from a debt consolidation loan. In theory, a debt consolidation loan makes perfect sense in that it can "convert" multiple high interest debts into a single, lower interest rate loan. However, Oklahoma residents should be aware that debt consolidation loans typically require that a home or other asset be used as collateral to get approved for the loan. So, if consumers, already struggling with debts, hit a rough patch financially, they could be putting their home or other asset at risk. Essentially, they may have traded "unsecured" debt that doesn't put their home at risk for a "secured" debt that puts their home at considerable risk.
In addition, many consumers who pay off credit cards with the proceeds from a debt consolidation loan may very well end up quickly accumulating a whole new round of credit card debts. In this scenario, consumers now have BOTH a debt consolidation loan and multiple high interest credit cards to deal with. Thus, the situation has gone from bad to worse and the cycle of debt continues.
How Debt Consolidation or Debt Management Plans (DMPs) Work
The aim of debt consolidation, also known as a debt management program (DMP), is to combine or consolidate multiple high-interest consumer debts into a single, more manageable payment each month. Through the benefits of debt relief such as lower interest rates and the waiving of late fees and penalties, a debt management plan coordinated by a credit counselor or debt counselor can help to rescue consumers in financial distress via a proven, predictable, accelerated path out of debt.
How are plans customized for each debtor? A credit counselor (or debt counselor) typically will interview consumers to gain a clear understanding of all of their debts. Then they will conduct a budget analysis with consumers to find out how much money can be realistically allocated each month to pay down those debts. Finally, based on this information they will come up with a game plan (a debt management plan or DMP) and send proposals to each of the consumer's creditors requesting the benefits of debt relief for the individual or family experiencing financial hardship. These benefits can include lower interest rates, a waiving of late fees and penalties, and generally more favorable repayment terms. Those creditors who agree to the proposals are then added to the debt management plan. For those that do not, it's important that consumers understand that they are still obligated to creditors according to the terms of their original agreements. Overall, debt consolidation or debt management plans can be very effective and save a substantial amount of money IF consumers STOP using credit cards AND begin the process of paying down the principal amount of debt on time, month after month, at a LOWER INTEREST RATE.
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State Programs for Low-Income Families
While the state of Oklahoma does not offer any debt relief grants or consumer debt programs, it does offer low-income families and individuals programs that lend a helping hand, providing access to healthy food, quality child care, or even financial assistance to help pay for utilities. Examples of such programs include Children's Health Insurance Program (CHIP), Oklahoma Medicaid, and Oklahoma Head Start, among others. To find out more about these services designed for low-income families and individuals, regardless of their debt situation, go to the state's homepage Benefits section.
Comparing Debt Consolidation with Debt Settlement
Credit counseling is a method of debt relief that has helped many individuals and families, but it's important to know that debt management requires discipline and a certain amount of restraint to avoid the "plastic promise" of "buy now, pay later" credit cards, and it normally takes three years or more to complete the program and take advantage of all the money saving benefits of a debt resolution program. On the other hand, an alternative to debt management is debt settlement, considered a more aggressive form of debt relief that may help consumers, facing the prospects of bankruptcy, get out of credit card debt faster, assuming they can accumulate money in a "set aside" designated account which can later be used as the funding source to reach a settlement with individual creditors.
With debt settlement, it's important to understand that, if consumers fall seriously behind in payments, credit card companies may decide to "sell off" debt as "bad debt" to a collection agency. In this scenario, creditors may get as little as 10 cents on the dollar, so it stands to reason that credit card companies may be willing to accept a reasonable settlement offer made by the consumer or by a debt settlement company working on the consumer's behalf to negotiate a settlement. Recognize that, when consumers default on the terms of credit card agreements in order to set aside monies in a settlement account, creditors may threaten or take legal action. In addition, money saved through credit card negotiated settlements are subject to federal taxation. Finally, debt settlement typically will have a negative impact on one's personal credit, but not as serious or long lasting of an impact as personal bankruptcy.
If you are struggling with credit cards and other unsecured debts or going through a financial hardship and need to review your debt relief options, answer a few simple questions and request your free debt relief analysis and savings estimate.