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Thursday, October 10, 2013

Best national debt relief options: Debt settlement and consolidation

National Debt Relief Programs and Options
Debt consolidation allows borrowers to lower interest costs

By Paul Paquin

According to financial analysts, Americans have accumulated over $11 trillion in consumer debt. Over 160 million Americans have credit cards and the average person has at least three of them. There is no question that many people throughout the country could benefit from debt relief options, especially in light of the following statistics:
  • Unemployment – As of August 2013, the national unemployment rate was 7.3 percent, which is down from 8.1 percent in August 2012, and significantly lower than the 10 percent rate in October 2009. Although unemployment rates have been declining throughout the United States, some analysts wonder if the drop in rates is due to the creation of jobs or because people who have been unemployed for the long-term may no longer be eligible for benefits.
  • Poverty level – For 2013, a family of four with an annual income of less than $23,050 is considered as living below the poverty level in the United States. As of September 2013, 15 percent of Americans were living at or below the poverty level, and that number is relatively unchanged from 2012.
  • Student loan debt – It is estimated that almost 20 million people attend college each year, and approximately 60 percent of those must borrow to cover costs. As of 2012, the average student loan balance is $24,301, with about one-quarter of borrowers owing more than $28,000. Approximately ten percent owe more than $54,000, three percent more than $100,000 and less than one percent owe more than $200,000.
  • Credit card debt – As of 2013, the average credit card debt in the United States was $15,185, and it is estimated that, overall, Americans owe more than $849 billion in credit card debt. In addition, the number of people who do not pay all of their bills on time rose from 28 percent in 2011 to 33 percent in 2012, although delinquency rates dropped from 0.73 percent to 0.63 percent in the second quarter of 2012. 
  • Bankruptcy – There were over 1.2 million bankruptcy petitions filed in the United States in 2012, a 13.4 percent decrease from those filed in 2011.

Debt consolidation services

For those who are struggling with consumer debt, including credit cards and personal loans, one option that may benefit them is debt consolidation services. In debt consolidation, the credit counselor works with the creditor to lower interest rates, and the debtor pays one monthly payment for all accounts included in the debt consolidation service. This allows the debtor to pay off the balances more quickly than paying each account separately at the higher interest rates. Each state has different laws regarding debt consolidation services, which is why it is important to contact a debt consolidation service that understands the laws in the state where the debtor lives.

Debt settlement services

Debt settlement services differ from debt consolidation services in that creditors are not paid on a monthly basis. The credit counselor works out a monthly payment plan with the debtor, and all payments are placed in an escrow, or trust, account. The credit counselor works with each creditor to reduce the total balanced owed by the debtor, so that the account is paid for less than the balance owed.

Although debt settlement can negatively impact a credit score initially, it can help a consumer avoid bankruptcy. The average settlement plan is for approximately 36 months, and it is important to understand that creditors are not paid during the settlement negotiations. Once the settlement has been agreed to by both the creditor and the debtor, payment is made from the trust account to the creditor.

Because student loans are guaranteed by the government, they may not be eligible for debt consolidation or settlement plans. However, there are options available for those who are struggling to meet student loan payments, and a credit counselor can help with student loan debt relief. For those seeking a by the numbers look at their debt, Golden Financial Services offers an informative debt calculator to determine how much time and money a person can save using a debt relief service.

About the author: Paul Paquin is the President at Golden Financial Services, a BBB "A+" Rated Debt Relief and Small Business Loans Company.

* Images: Author owned and licensed