California Debt Consolidation and Credit Counseling! How Do These Programs Work?

Throughout these rough and stressful times a lot of residents of California with large sums of credit card debt have been looking over the various options available on the market in terms of debt relief.  A lot of people at first consider debt consolidation, as this is perhaps the most popular term people associate with debt relief, however many people do not have the slightest clue how debt consolidation works. 

There are two kinds of California debt consolidation; the first is to get a debt consolidation loan, and the second is to sign into a California credit counseling program.  Most people confuse these two options, while they do have similarities there are also some stark differences making one option much more risky than the other. 

First let’s review the option of obtaining a California debt consolidation loan and how it works and what it means.  The reason to get a debt consolidation loan is to use the loan money to turn around and payoff the credit card balances.  The benefit of doing this is there will now be only a single monthly payment towards the loan; as an alternative to making multiple credit card payments each month.  Another benefit of the loan is oftentimes the loan will offer a lower interest rate than what many people were paying out towards their credit card balances.

This may sound great but there is a giant downside to this option and that is that most of these types of loans are secured; and many people use the equity in their home to get the loan.  And for those consumers who do not have any type of collateral to offer getting a debt consolidation loan is near impossible.  Obtaining a loan in these times is extremely difficult even with good credit and the home equity; the devastation in the housing market has made banks become extremely strict with their lending. 

The following is a warning to those who have the equity and means to obtain the secured debt consolidation loan.  In essence what is taking place here is that you will be transforming your unsecured low risk credit card debt into a much higher risk secured loan against your home!  So if there are anymore financial troubles in the future and you cannot make payments towards this loan the chance of losing your home is quite high.  The numbers have shown that over 80% of those who get debt consolation loans end up right back in credit card debt within five years.  Unfortunately most people’s income does not increase by anywhere near the amount it will take to satisfy the monthly payments towards the loan and the new credit card bills, at this point many people can only look into bankruptcy to fix this mess.  So please I advise you to think long and hard before making the decision to get a California debt consolidation loan.

The second option mentioned above is a California credit counseling program.  Credit counseling programs are extremely similar in some ways to a debt consolidation loan.  The benefits are lower interest rates like a loan and one monthly payment that gets made to the credit counseling agency who then disperses it to your creditors on your behalf. 

There are however some downsides to the credit counseling process; for most people the monthly payments will be either very close or sometimes more than what people are putting out towards minimum payments right now.   And a little fact not known by many people enrolling into credit counseling programs is that if you miss two consecutive payments the creditors themselves will kick you out of the program and bump the interest rates back up.  Once again statistics are not in the debtors favor as more than 70% of people enrolled into such programs will not finish.

When you compare both of the above mentioned options with debt settlement there are some even starker differences.  The main difference is with a debt consolidation loan or credit counseling program the debtor will be paying back the entire debt owed plus interest, with debt settlement the debtor will pay back a reduced amount of the current balance owed.  So obviously the debt settlement program will take less time, in most cases 2-4 years, where credit counseling will take between 5-7 years.  And the savings of money with debt settlement are significantly higher; many times up to half of what is currently owed.

With the current condition of the economy what has been helping debtors the most is debt settlement.  Such large numbers of people have lost a significant portion of their income and have charged up huge balances on their credit cards.  The benefits of becoming debt free very rapidly and saving money in the process far outweigh those offered from debt consolidation loans and credit counseling programs.   And quite simply many people do not have any other option than debt settlement (besides bankruptcy), with minimum payments that are far to high to handle with their monthly income and no way to obtain a loan debt settlement becomes pretty much the only viable option. 

If you would like to speak with a debt analyst to see which of these programs will work best for you and your family please click the link below and fill out an application form or call the toll free number

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