New Jersey Debt Consolidation & Credit Counseling, How Do They Work?

During these stress filled financial times many residents of New Jersey with credit card debt have been seeking out the various options available to them in terms of debt relief.  One of the first options many people think about is debt consolidation, however most people do not have any clue how debt consolidation works. 

There are two forms of New Jersey debt consolidation; one is to obtain a debt consolidation loan, and the other is to enroll into a New Jersey credit counseling program.  A lot of folks confuse debt consolidation with credit counseling, however they are both different debt relief programs, but they do share some similarities.

Let’s first explore the option of getting a New Jersey debt consolidation loan and what it means.  A debt consolidation loan is a loan taken out that is used to pay off credit card debts.   The benefit is now there is only one monthly loan payment, instead of many monthly payments to various credit cards, and in many cases the loan will come with a lower interest rate than what people were paying out towards their credit cards. 

With that being said the vast majority of debt consolidation loans are secured, and in many cases people use their home as collateral for the loan.  So for those people who do not have anything to offer for collateral obtaining a debt consolidation loan may not be possible.  Getting the loan with no collateral is extremely difficult, especially with today’s financial climate.  For one the debtor must have extremely good credit to even think about getting an unsecured debt consolidation loan, and most people who are deep in credit card debt even if they are current will not have the credit for such a loan. 

Now for those who do have property and have the collateral to get a secured debt consolidation loan must heed the warning.  What essentially is happening here is that the debt is being transformed from a low risk unsecured credit card debt into a much higher risk secured loan.  So if the payments do not get paid the debtor is now running the chance of losing their home.  Statistics show that over 85% of people who get debt consolidation loans within five years end up back in credit card debt.  At this point many will be looking into bankruptcy.  So please think strong and hard before making this decision of getting a loan, because it could spell disaster in the long run.

Another option for debt relief is to look into a New Jersey credit counseling program.  A credit counseling program is very similar in structure to what a debt consolidation loan is but without actually getting a loan.  The benefits of this program are one monthly consolidated payment that gets paid to the New Jersey credit counseling agency in which they then disperse to the creditors on the debtors’ behalf.  Another benefit of the program is the creditors are willing to lower the interest payments. 

The drawback to credit counseling for many people right now in this down economy is that the monthly payments in many cases are very close and sometimes even higher than what people were paying out for their monthly minimum payments.  What most people do not know is that by missing as much as one payment on a credit counseling program the creditors will kick them off the program and revoke the benefits.  Statistics have shown that over 70% of people will not last to graduate the program. 

This credit counseling program varies greatly from debt settlement because you are actually paying back the entire debt owed plus interest.  So naturally the program lasts much longer, anywhere from 5-7 years, as opposed to debt settlement which is typically between 2-4 years, in addition to a much higher savings of money. 

Right now what has been helping debtors the most is debt settlement.  Way too many people have lost a significant portion of income and have rung up large sums of credit card debt and will benefit the most by settling out their debts and saving money and time.  The people who better qualify for debt consolidation or credit counseling are those who truly do not have a problem paying their debts and then plus some each month, those who are strapped barely making the minimums are much better suited towards a debt settlement program

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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