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Debt consolidation involves the commingling of many different debt-related bills. Unsecured debt in a single monthly payment. If you are facing a large amount of bills debt consolidation may be the solution you need.
The same accounts can be related to credit cards, medical bills and personal credit.
When you settle multiple accounts in a single payment, you lower the risk of having missed payments to date. These create extra fees or errors related to sending incorrect amounts to creditors.
You can also benefit by reducing your total monthly debt payment. That while reducing interest rates and expenses. Taking action to erase debt can help protect your credit score and pay off your debts. In less time Sound like a good idea?
Debt Management Plans
The process of consolidation of varias debts through a Debt Management Plan (DMP) begins with a credit counseling session.
During this 45-90 minute session, you will receive actionable tips from a credit counselor. These include ways to reduce your debt and control spending for your specific financial situation.
Unsecured debts are good for consolidation in a Management plan, debts such as:
- Mortgages
- Student loans
- Lines of credit with mortgage guarantee
- Auto loans,
cannot be included in a PGD.
Once you are in a PGD, your credit card accounts are closed. You will not be able to obtain new credit. This closing of accounts will have an adverse effect on your credit score.
In fact, although your credit report will indicate that you are enrolled in a PGD, it does not hurt your credit score. It is the closing of credit card accounts that hurts your score.
It would not do you any good to seek new credit while you are on a PGD. Creditors are aware of any request for extra credit by viewing your credit report. You may make creditors want to abolish the interest rates and payment permission established through PGD.
Credit Counseling Agency
A good credit counseling agency creates a realistic budget for the debtor given the details of the financial situation involved, and will issue a monthly report illustrating payments made to creditors along with remaining debt balances.
The guidance service also ensures that there are concessions, will have communication between the debtor and the creditors and will adjust the appropriate payment amounts to the individual creditors as discussed in the PGD.
Debt Consolidation Loan Example
In a good debt consolidation loan moment, the debtor asks for sufficient funds. This is to pay off all unsecured debts (credit cards, medical bills, etc.).
This makes it easier to make many payments each month on a smaller monthly payment at a lower overall interest rate against the debt consolidation loan. It is also good for the debtor to get away from the bad spending habits that caused him or her to get into debt in the first place.
Regular debt loans are not bad for credit scores; on the other hand, they can be good for credit scores when a borrower makes timely and timely payments against the PGD. Any missed or missed payments will quickly damage a credit profile. Loans for regular debt are not taxable. On the other hand, debt savings in excess of $$ 600 that are achieved through a debt erasure plan are taxed as regular income.
