Debt Reduction and Consolidation – Understand Your Credit Score
Debt reduction or debt negotiation is the voluntary cancelling or partial forgiveness of debt, owed by people, governments, or corporations. With the escalating amount of debt worldwide, many people are finding themselves in financial troubles and need to take advantage of options available. Debt negotiation is one such method that provides people with a way out from under the debt burden. A legitimate debt reduction service can help guide you though the process of eliminating debt.
Debt settlement has become the most popular debt reduction procedure among consumers in the United States. The process works by hiring a third party to contact creditors on behalf of the debtor. Creditors agree to accept reduced payments in exchange for full acknowledgment of the debt. The creditor sends the agreement back to the indebted consumer, who then submits it for approval to the Office of the Comptroller of the Currency. If approved, the negotiations begin.
Most debt reduction services offer lower interest rates and a payment plan that allows consumers to pay off their accounts in five years or less. They can also offer debt consolidation where all high interest rate debts are combined into one lower interest rate account. A debt snowball method is also used to reduce debts because this process reduces the overall balance in credit card accounts by reducing the available credit each month. This ensures that the accounts are paid off faster.
As consumers gain more knowledge about debt reduction and consolidation, they may wonder if a debt consolidation loan will hurt their credit score. Most experts agree that a debt reduction or settlement will not have any impact on a credit score. However, there are some exceptions to the rule. If the debt consolidation loan carries a low interest rate than the combined balances of the credit cards, the new loan must at least be equal to or less than the total balances. And any late fees, over the limit fees, and other charges that an account may have will need to be removed from the final amount. Consumers can request a copy of their credit score from the credit reporting agencies once a year.
For many consumers, debt reduction services provide the means for paying off their debts with a lower interest rate and a more manageable monthly payment. For others, debt reduction services provide a means to get out from under the debt that is causing them stress and worry. If you are asking yourself if debt reduction services is right for you, your best option is to find a reputable and established company that can explain all of your options. And, make sure that you understand all of your options with the company so that you can decide which is best for you.
If you do decide that debt reduction or debt consolidation would be right for you, it is important that you be diligent in your efforts. It is very easy for consumers to ignore their creditors and simply pay the minimum. However, if this behavior continues, creditors can file legal claims against you. This can result in not only high payments and high interest rates, but also garnishments or other legal actions that can negatively impact your credit score. As you work with your counselor or company, it is important that you remain completely honest with them and with yourself about your plans.
Remember, if you are considering debt reduction or consolidation, it is critical that you review your financial statements. Be sure to look at your credit card debt, any other outstanding debt and your payment history with your current creditors. If you find any red flags, make adjustments to your spending habits to ensure that you are not incurring additional debt just to pay off your current credit card debt. If you find that adjusting your budget is not enough to change your financial profile, consider hiring a credit counseling or debt reduction agency to help you achieve a healthier financial profile.
Once you have found a reputable debt reduction or consolidation agency, it is important to thoroughly check out any potential companies. With the internet, it is easy to compare different debt settlement or consolidation companies, but it is important to remember that all debt reduction or consolidation programs are not created equal. If you are considering bankruptcy or another extreme option, it is critical to thoroughly research all companies before deciding on one to pursue. This will help to ensure that you receive the highest quality service and that you do not become a victim of a company that made false promises or signed your name in an untrustworthy agreement.