If you owe lots of money to the credit card companies, a debt-consolidation loan or debt-reduction program may be a good choice. Even so, it is important to examine your options carefully, since these options may not be the right choice for everyone. Understanding the reasons for your debt problems and making a plan going forward are the best ways to get debt-free and stay that way.
Debt Reduction Services
Debt-reduction services may sound good, with their promises that you can pay your creditors a fraction of what you owe and walk away from your responsibilities, but the reality is rarely that simple. These debt-consolidation services are in business to make money, and they often charge exorbitant fees before delivering any results. In the end it is extremely unlikely that the credit card companies and others to whom you owe money will be willing to settle for pennies on the dollar.
The effort you would have spent looking for a debt-reduction company would be better spent trying to negotiate with your creditors on your own. Some creditors are willing to work with their customers on a payment plan, and some creditors may even be willing to adjust the interest rate or reduce the amount of the principal.
Debt Consolidation
For consumers who are in a bind because of an unexpected job loss, large medical expense or other unforeseen event, a debt-consolidation loan can be an excellent way to get back on sound financial footing. The important thing when looking at a debt-consolidation loan is to recognize that it is a short-term solution, and the long-term solution must include proper budgeting and a solid financial education.
Homeowners may be able to harness the equity in their homes to pay off high-interest credit card debt stemming from medical bills, job losses and other emergencies. Even so, it is important to keep in mind that the loan is secured by your home, and that means you will need to be diligent about paying off the loan and just as diligent about not racking up any more debt.
Financial Education
No debt-consolidation or debt-reduction plan would be complete without a course in financial literacy and a solid financial education. One of the chief reasons for high levels of credit card debt is a lack of financial education, and addressing that fact should be a key part of any financial rescue plan. Few high schools teach even a single class in financial literacy, and even many colleges teach only the basics--like how to balance a checkbook. In order to avoid problems with debt in the future you will need to learn how to use credit wisely and how to create a realistic budget for yourself and your family. Many community organizations and non-profit groups teach these types of classes, so it is definitely worth your while to seek them out.
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