Debt Removal Program – Comparing Debt Programs
Debt relief programs help reduce your debt and improve your financial situation. But not all programs offer the same benefits or risks. Depending on your situation, some programs will be better than others.
Debt Management Program for Handling Accounts
Debt management plan (DMP) handles your unsecured loans. You make one monthly payment to the company, and they handle the rest. Debt management companies also work with creditors to reduce your interest rates, helping you pay off most accounts in five years. Creditors have a predetermined rate, so all debt management companies will give you the same reduction rate on your account.
Not all loan interest rates can be reduced, for example car and student loans. Your credit can also be frozen for a year or more. However, when you make regular payments and a lower debt to income ratio, you will immediately qualify with a conventional lender.
Debt Negotiation Program To Reduce Debt
Debt negotiation programs reduce part of your debt. Most companies boast that for a fee, they can reduce their account from 10% to 50%. With a lower principal balance, your monthly payments will be lower, allowing you to pay off the rest of your account.
Reducing your loan balance will have a long-term impact on your credit history. Although you may be eligible for subprime loans, most conventional lenders will not handle your application for at least two years. Debt reduction must also be reported as income for tax purposes.
Credit Counseling Program For Developing Plans
Credit counseling programs make personal financial plans. Certified counselors discuss your situation in private meetings, either in person or by telephone. They might suggest loan consolidation, DMP, or debt negotiations. They can also help you plan your future goals, such as buying a home or retirement.
When you compare programs, make sure to compare the effects on your credit score, not just fees and tempting lower payments. A slower approach than DMP can save thousands of interest costs for future loans. However, there are some cases when debt negotiation is a better choice, especially to avoid bankruptcy.