By David Pilley on October 25, 2010
.jpg.aspx) Debt elimination programs may be offered by many financial institutes, whether in person or online. The word “elimination” is deceptive because you might think this type of program will get rid of your debt immediately, but it takes time. It takes a while, a few months to even a couple of years, to carefully pay back your debt on a schedule while also trying not to rack up additional debt. The three types of programs a company might offer are consolidation, settlement, and debt management.
With consolidation, multiple debts are combined onto one account, so you have just a monthly payment and one interest rate to remember. You can combine the same types of debt into a single account. You can put all of your credit card debts on one account, all of your bills onto another account, and any payday loans or other types of unsecured loans can be consolidated into one single body. You will then make a monthly payment on a plan that should last a couple of years.
With a debt settlement program, you or the company will negotiate the debt with your creditors, and you will end up with a lump sum amount to pay back in a certain period. You might do this if you don’t want to keep track of a payment each month. Always check with the Better Business Bureau to see if the company is reliable before negotiating a settlement.
You could also try a debt management program, in which a counselor will assess your financial situation and help you create a budget. Quite possibly the most important part of any debt elimination program is setting a budget on which you can pay back your creditors and still maintain a healthy lifestyle in your home. In a debt management program, your counselor may also try to get your interest rates lowered, and then he/she will draw up a plan for paying back your debts in monthly installments.
There are positives and negatives to any choice you made, including getting rid of your debt. A debt settlement might be good for someone who wants to make a single payment. However, the assigned amount is typically due in a couple of months, and you’ll be in more trouble if you can’t pay the entire amount then. A more gradual approach would be debt consolidation, where your payments are spread out over a course of a couple of years. Try to get an amortized loan here, as you will then have an assigned minimum monthly payment. Try to make more than the minimum payment for the first few months, and always pay at least the amount assigned as interest. And if you have trouble making a budget, talk to a counselor and set up a debt management program. The payments from this program will also be spread out in the span of a couple years.
Finally, the company you do business with might charge fees. Do not pay for anything until a final plan is in print and you have a copy of it. Also, to avoid growing new debt, use cash or your debit card for purchases instead of your credit card. The choice is yours as to which type of program you choose (or whether you do it yourself), but following these guidelines will help you lower your debt in the near future.
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