Welcome to Debt Consolidation Tips

Negotiate With Your Creditors

A debt consolidation company puts together a solution that is unique to your financial situation and will help you get your debts paid off as soon as possible. After your first meeting with a debt consolidation specialist, their first order of business is contacting your creditors and negotiating on your behalf to see if they are willing to accept a lower payment, and possibly lower your interest rates. The goal is to help simplify your monthly financial commitments. After your creditors accept the proposed payment plan, your counselor will work with you to design a payment plan based on a budget analysis of your current obligations. You will then make one monthly payment to your debt consolidation company, and they disperse the proceeds to your creditors.

An important part of this repayment plan is that you agree not to apply for any new credit or incur any additional debt while you are enrolled in the debt repayment program. Another bonus for having a debt counselor is that they can provide its members with ongoing counseling and education during the repayment period, and after completion of the program to ensure individuals stay on track towards their financial goals. A reputable debt consolidation company will provide you with all of the necessary resources needed to help you prioritize and allocate your money appropriately.

Stop Keeping Score

Worried about your credit score if you use a debt consolidation service? Once your creditors agree to work with your debt counselor your credit cards and accounts that are part of the repayment plan will be closed. The accounts are closed to prevent you from running the balances back up again. The way the FICO scoring system is designed, if you close an account your credit score may decrease. The reason you may see a decrease in your FICO score is because the average length of credit your accounts in your credit history has significantly decreased. Keep in mind, length of credit history is 15% of your FICO score. So your score may decrease initially when you begin your repayment program.

Your main concern is paying down your debt. As you pay down your debt, your balances will decreases. Furthermore, the longer you continue to demonstrate the ability to pay on time, your credit score will increase over time. There may be other factors that may affect your credit score. Its is important to discuss this and other potential issues you may be concerned about before entering any type of agreement with your credit counseling service. These programs are designed to help you, not hurt you. If you get an uncomfortable feeling after your first meeting, it may be in your best interest to keep looking for other debt counselors.

Set Up a Payment Plan

Although the ultimate goal of a reputable credit counseling service is to help its participants, there may be some instances and situations where they just may not be able to help you. If after looking at your financial situation the credit counselor determines it will take more than five years to cure your debts, they probably will not offer you a repayment plan. But this is not the end of the road. You may still be able to work out a repayment plan with your creditors.

Contact your creditors and advise them of your current situation. This is not a time to be embarrassed or hide behind your pride. Full disclosure is the name of the game, and will take you further instance. Let your creditors know that you have every intention to repay what you owe. Your primary responsibility is to call your creditors to determine if they offer any time of repayment plans. Most do, and you may not know unless you call. If you are behind on your bills, and haven’t picked up the phone, do not wait another minute. Call them today.

When to Make the Call

Not sure when to officially call a credit agency or contact a debt counselor? Consider these scenarios:

• If you take out a cash advance because you do not have cash. Emergencies happen, and that is understood, so be very cautious if you use cash advances.
• Have you applied for a credit increase and been denied? This is different than your credit card company periodically raising your limit. This is done to reward its card members for demanding responsible use of credit.
• Have you lost track of whom and what you owe?
• Are you paying off a credit card by using another credit card? If you are using one debt to pay off another debt, you are not making financially responsible decisions.

These are just a few examples of situations where you might find yourself in. If this is the case, do yourself a favor and contact a debt counselor right away.

Don't be a Victim

With consumer debt at an all time high, it's no surprise that creditors want their money back. Business is booming for collections agencies, and they are getting more creative and aggressive with their collections practices. The majority of the complaints are not targeted toward the creditors themselves, but they are aimed at the collections agencies that represent these creditors. These third party collections agencies are aggressive, and downright ruthless. These aggressive agencies accounted for nearly 15,000 complaints filed with the Federal Trade Commission in 2001.

The Fair Debt Collection Practices Act of 1977 established some guidelines for collections agencies. These rules included no calling prior to 8:00 am, or after 9:00 p.m., calling you at your place of employment, threatening to garnish your wages, or threaten to take you to court. If you are fed up with these calls, you do have options.

Make it crystal clear that their phone calls are causing you emotional, and physiological distress. If you communicate that they are causing you distress, the call are supposed to stop. Write a Cease and Desist letter to the collection agency outlining the distress they have caused. If after your phone call, and your letter they still fail to comply, you can file a formal complaint with the Federal Trade Commission and your states Attorney General’s Office.

Consider a Home Equity Loan or Home Equity Line of Credit

If you refinance your debt via a HELOC or Home Equity Loan, your debt is now secured. That means your house is tied to your debt, and if you cannot make your payments, you could lose your house. On the other hand, debt consolidation involves taking debt from one or more sources and transferring it into one area. The goal of consolidating your debt is to lower your total payments, and hopefully lower your interest rates. Either of these options are great, but each carries some level of risk.

The Home Equity Line of Credit and Home Equity Loan, although tax deductible, are anchored by your house. There is always the possibility of losing your home if you call behind on your payments. Recent studies have shown that the majority of individuals who pay off their credit cards via a Home Equity Line of Credit or Home Equity Loan, end up charging their credit cards right back up. The best way to avoid this is by cutting up and getting rid of all but one credit card for emergencies. Keep a low credit limit on this card so that it is easy to payoff if it is ever used.

Paying Down Debts is a Priority

It’s important to understand that the overall goal of a good debt consolidation company is to make sure you are debt free as soon as possible. On average, most individuals on repayment plans with debt consolidation companies typically pay off their debts within 24-36 months. These programs are only as good as you make them. If you work hard, and are focused on paying down your debt, you may be able to pay off your debts quicker than the average 36 months. But it does take work and dedication. These organizations really want to help you, so give them the courtesy of a call if you find yourself falling behind.

Consider a Debt Consolidation Service

Hopelessness, worry, anxiety, and fear are all emotions associated with financial difficulties. It may seem as if you have no where to go or nobody to turn to. That’s not necessarily true. There are organizations out there that help individuals in financial despair consolidate their loans into one easy payment. Organizations like the Debt Counselors of America, and the National Foundation for Consumer Credit, are the most widely recognized.

Most members of the NFCC are known as Consumer Credit Counselors, and provide free or low cost debt counseling services. Consumer Credit Counselors are part of a national network that has local offices throughout the country that individuals can walk into and seek assistance. If there isn’t a Consumer Credit Counselor office in your area, you can turn to the Debt Counselors of America. They can assist you over the phone or via the Internet. The aforementioned organizations specialize in helping people get their financial affairs in order. You don’t necessarily to be facing a financially challenging situation to take advantage of their services. For a list of names, phone numbers, and addresses of NFCC members log on to www.debtadvice.org.