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(Franklin Debt Relief offers a debt settlement program to consumers
and is not a credit counseling agency. The information presented
below is for educational purposes, so that consumers can make a more
educated decision on whether debt settlement, the service offered by
FDR, or credit counseling, the option described below, is a better
debt relief solution for their situation).
When it comes to debt relief, the ideal credit counseling client
has the same underlying issue as the
ideal debt settlement client: he or she is having problems with unsecured debt. Besides that,
there is very little that they share in common. The purpose of this
article is to identify the characteristics held by the ideal credit
counseling candidate:
1. An ability to pay at, near, or more than the minimum payment–
Unlike debt settlement, where a consumer’s monthly payment to the
program may be relatively low compared to the credit card minimum
payments, credit counseling can be somewhat demanding for consumers
who are truly overextended with their bills. For consumers who are
experiencing a financial hardship, debt settlement may be the
appropriate debt relief choice. Credit counseling, on the other
hand, is usually an appropriate debt relief option for consumers who
have adequate income and a debt load that simply needs to be better
managed.
2. Does not own a home or lacks the equity to get a second
mortgage – Despite what you may hear from a credit counselor,
enrolling in a debt management plan will have a negative effect on
your credit profile, unless of course your credit is already
suffering. This being the case, why would a consumer intentionally
choose to impair their credit when a more cost-effective, more
credit-friendly alternative exists? That alternative of course is
taking out a home equity loan. With credit counseling, the goal is
to consolidate your debt and lower your interest rates to the 7 to 9
percent range, which when considering the finance charges of credit
cards, can be a substantial reduction. That being said, you can
accomplish this with a second mortgage as well, and on top of that,
you can deduct the interest paid on your income taxes, which only
increases the savings. When does taking out a home equity loan not
make sense?
a. When you lack the credit score that will help you obtain
favorable interest rates – The end goal of a savvy consumer should
be to save money, so paying high interest on a home equity loan
rarely makes sense from a financial perspective, even with the tax
advantages.
b. When you are not certain you can afford the payment – Since your
home is at risk when you consolidate your debt with a second
mortgage, if there is even a slight doubt as to whether the payment
is affordable, you should find a debt relief program instead.
c. When your problem is one with overspending and you have
consolidated credit cards in your home before – Since your credit is
not negatively affected by a home equity loan, you will still be
consistently solicited with credit card offers that may put you back
in this situation again. In credit counseling and other debt relief
programs like debt settlement, a consumer is prohibited from
incurring further credit card debt, which causes many consumers to
become more accustomed to living on a cash only basis, where they
only purchase items they need and can afford. This “training
period” can prove to be beneficial for years to come as consumers
learn to be self-disciplined about their finances.
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