Debt Counseling is when an over in-debt individual goes to a debt counselor to apply for debt counseling for protection from creditors. With the help of a debt counselor the over in-debt individual can apply for lower monthly payments at creditor. The customer’s monthly expenses must exceed his income to qualify for debt counseling.
Debt consolidation is when an individual will take out a new loan with lower interest rates and sometimes longer repayments terms to reduce the monthly installments and so lower the individual’s monthly expenses. A consolidation loan is where you consolidate all your short term loans and credit cards with high interest rate into your mortgage loan which is a low interest long term lone. You will get lower interest rates and the term of the loan will be extended to up to 20 to 30 years.
Many people with debt are finding it difficult to manage with increase in living cost and bills increasing month after month. Customers have a choice to consolidate debt or apply for debt counseling to improve personal cash flow.
To be able to consolidate debt you need to have a mortgage to consolidate debt. Only a mortgage with long term and low interest will reduce your monthly payments, but you will pay more interest because of the longer period of the loan. So you will consolidate your short term high interest credit card and personal loans to your long term low interest mortgage. Currently many people find it difficult to convince a bank to do a consolidation loan. Banks have increased lending criteria and it is not easy to get consolidation loans via your mortgage at present.
The other way to lower monthly installments, is to apply for debt counseling. Your monthly income must be lower than your monthly expenses which includes monthly essential expenses as well as debt to qualify for debt counseling. The debt counselor will contact all your creditors and inform them that you have applied for debt counseling.
The debt counselor will negotiate with creditors to lower monthly payments to what the customer can afford to pay each month. The customer will stay in debt counseling until all debts are paid or customer situation changes and opts out of debt counseling. It is much easier to qualify for debt counseling than a consolidation loan at the present time. It is a sign of the times? Maybe.
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