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Debt Consolidation Alternatives

By: Michael Millington

Consolidating debt has almost as many alternatives as getting into debt does. Loans, credit cards and mortgages (among other things) can get you into debt, but interestingly, these are also potential debt consolidation alternatives. For those who aren’t interested in starting up with a debt consolidation program, there are some other methods in place that can be just as effective as debt consolidation in gaining credit card debt relief or other kinds of debt relief.


Debt Consolidation Alternatives to Consider

Debt consolidation programs are primarily used to deal with multiple debts at one time. For those who don’t want to engage in debt consolidation, another form of debt relief is available: debt settlement. Debt settlement allows a debtor to engage the creditor (or, in some cases, multiple creditors) in a manner that allows the debt to be settled over time and without creating new debt. It starts with a lump sum of cash that can be close to but not equal to the amount owed. The debtor then offers the lump sum to the creditor as a means to settle the debt. The creditor is under no legal obligation to accept the settlement offer, but in some cases the creditor will accept in the interest of getting a portion of the debt paid. This is commonly the case because of the constant threat of bankruptcy being used to eradicate the debt. Credit providers would rather get some payment than no payment, so they are more likely to accept a debt settlement program.


A second major alternative to debt consolidation is a debt management plan. With a debt management plan (generally done through a credit counseling service) several debts are organized together and one payment is made that is subsequently divided among all current creditors. In this manner, monthly payments are being made on the accounts in question. In some cases, the payment isn’t equal to what it might have been, but in a debt management plan some creditors are willing to decrease the amount of payment expected to fit in with the terms of the plan. Since you have an opportunity to have your payments decreased, a debt management plan can be worth considering.


The third major alternative to debt consolidation is the last-ditch plan for all debtors and the one that makes the other three alternative all more agreeable options to creditors: bankruptcy. Under certain conditions, bankruptcy removes many kinds of debt from consideration and discharges them, meaning that creditors no longer have a right to collect.


Most creditors would rather not have your debts go to bankruptcy, effectively negating the debt and equaling a loss for the creditor. Aside from the purpose a debtor has for a loan, the lender looks to make a profit from the loan from interest rates incurred through the length of the repayment period. Because of this, creditors are often willing to make some concessions in a bid to prevent the debtor from considering bankruptcy. Bankruptcy has serious consequences associated with it (including damaging credit scores and making it difficult to apply for credit in the future) but when it comes to debt help, there are few more complete debt consolidation alternatives than bankruptcy.


Though there are many types of debt, there are also many ways to address that debt and get the debt relief help that many need. Debt consolidation is one tool in the toolbox, but there are plenty of debt consolidation alternatives that will do the job just as effectively. Before engaging in any activity to get out of debt, be sure to consider all the options fully to make sure the best option is the one you go with.