A debt consolidation service provider can help assemble outstanding debts into a single loan, requiring just one monthly payment. This service also enables individuals to convert smaller debts, such as outstanding credit card balances, into a larger loan with a lower interest rate.
In this article, we're going to talk briefly about overspending, and how it can quickly lead to problems. Then we'll take a page from the business world and discuss how budgets can help with personal finances too. Next, we'll talk about alternatives such as negotiating with creditors. Finally, we'll talk about consolidation services, including a specialized service known as Christian debt consolidation.
National statistics indicate the amount of debt held by consumers has risen dramatically over the last 20 years. Economists continue to debate the benefits and costs associated with economic growth based on overspending. While the federal government can always raise taxes to help reduce the national debt, it's not as easy for individuals to increase income flowing into a household.
According to Federal statistics, about 4% of the U.S. population has $10,000 or more in credit card debt. Even more surprising is that Americans owe an estimated $985 billion on their credit cards as of August 2020 2019.
When it comes to debt, individuals can learn from the business world where the objective is to increase profits. Investors oftentimes evaluate the financial wellbeing of a company based on a fairly simple equation:
Profits (or Loss) = Income minus Expenses
Individuals will get into trouble if they disregard this simple profit and loss equation. When household expenses outpace family income for too long, "losses" will continue to mount and debt will increase.
Companies strive to be profitable. To keep them on course, they use budgets. Consumers can learn from budgets by examining where money comes from and where it goes each month. It's typically easy to identify sources of income. It's the household expenses that are more difficult to understand and calculate each month.
This isn't an attempt to discourage the use of a debt consolidator, but it's important to stay out of debt over the long haul. Our article Budget Worksheet is a great start for individuals that have never built a budget in the past.
Another alternative is what the industry calls debt negotiation. This is the process of working with creditors to see if more realistic payment schedules, sometimes referred to as deferred payment arrangements, can be secured.
For example, let's say that Bill owes his electric utility $800. Are they willing to let him pay off that amount over the next six months? Anyone having short term trouble making their monthly payments may find that negotiating with creditors can help.
Whenever a company gets a call asking about a deferred payment arrangement, they may get more aggressive with their near-term collections activities. Don't count on sympathy from the collector, they are trained professionals and they're used to hearing what they believe are "lame" excuses.
Individuals are better served taking a humble approach, explaining the facts behind their financial hardship, offering a payment solution, and negotiating from that point. Individuals that struggle when trying to negotiate should consider hiring a firm that specializes in this service.
Individuals that are still convinced they need the help of a debt consolidator should understand the pros and cons of this approach. There are some big advantages of having one large loan:
This kind of service also comes at a cost. It is very likely a good portion of the debt being consolidated is unsecured. A utility cannot make someone give the energy back; it is consumed. A debt consolidation loan will almost always be a secured loan that requires collateral. It is very likely that a home will be used as collateral on the debt consolidation loan.
Individuals that stop making their monthly payments, or start missing payments, run the risk of foreclosure on their home, or the seizing of their assets. The service provided by these companies certainly helps a lot of people to deal with their financial problems, but it's important to understand the basics too:
There is one more specialized service worth discussing too. The Bible has over 2,000 verses or references to earning, saving, spending, investing, and giving money away. Christian debt consolidation services are based on a system of helping others to help themselves, and lending a helping hand.
While the concept sounds great, consumers should remain skeptical, especially when money is involved. When looking for a company that offers legitimate Christian debt consolidation services, make sure there is a statement about non-profit status, usually a reference to an IRS 501(c) (3) non-profit charitable organization.
The following lists should help individuals to separate misleading from quality services.
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