Two of the things a credit counselor is going to go over with you are debt consolidation and debt relief.
The two are entirely different.
Consolidation amalgamates your debts so that you only have one payment normally handled through an intermediary.
Debt relief is the process of working with creditors to eliminate some of your debt.
Essentially, debt consolidation is a new loan - new debt.
Treatment is also quite different in the eyes of the IRS Whatever the negotiated reduction in your debts under debt relief, the amount is considered income in your hands by the IRS and you are liable for income tax at your effective rate on it.
If you have previously qualified as low income, that status may be lost depending on how this additional income affects your total income.
Possibly, your benefits can be jeopardized also.
Additionally, relief will be noted on your credit report and will act as a barrier to further lending.
Your ability to rent may be affected.
Having said that the act of seeking debt relief may be better than a bankruptcy alternative.
Your credit file will show a bankruptcy for ten years.
Debt relief, probably only three.
Usually, this step is only considered after all other possibilities have been eliminated.
You can only qualify for debt relief if you have an extreme level of debt and where a Debt Management Plan, a form of debt consolidation, cannot be arranged.
Debt relief is extremely hard to obtain.
Would it be better to declare bankruptcy than try to negotiate debt relief? In bankruptcy you will essentially lose most of your possessions other than your household goods.
In some states, you can even lose your house.
Bankruptcy will take in to account every creditor, including those who you have not allowed to get in to arrears.
Depending on the timing of your filing, bankruptcy can take the payments that you made to one creditor and allot them to others.
Be aware that you will lose all control over your financial affairs in bankruptcy.
Because of these facts, seeking help through debt consolidation at an early stage may be a wise decision.
In addition, bankruptcy law in the US has recently changed substantially.
The new provisions of the law require you to go to credit counseling before filing.
Debt relief is a last ditch alternative but may be better than filing for bankruptcy.
At this stage, don't give up.
A person with an income usually can qualify for some form of debt consolidation.
Place your situation in front of a certified credit counselor and ask about the possibility of a debt consolidation loan.
These professionals can develop a plan that is affordable given your circumstances.
Counselors will become aware of your income level and how to present it to a lending institution.
Since few people need bankruptcy, they will help put your mind at rest.
The first step is to locate a professional debt counselor in your area from the National Foundation for Credit Counseling.
These professionals provide free or very low cost services.
To get the help that you need should cost you nothing or very little.
Do you feel desperate right now? If so then you probably do need to seriously consider debt consolidation.
Debt Management Plans usually use negotiated reduction coupled with debt consolidation.
In order to achieve this, the counselor working with you will attempt to work with your creditors to reduce your monthly carrying cost.
In this type of scenario, you will be able to stop the phone calls and letters.
The presence of a professional credit counselor will give your creditors confidence that the debt will ultimately be extinguished.