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Date / Time: 10/17/2007 7:45 PM UTC

Debt Consolidation VS Debt Negotiaton

Definitions of Debt Consolidation on the Web:

• A strategy sometimes used by consumers to better manage their debt problems. Rather than paying off several separate bills each month, a consumer consolidates his or her debts with a financial institution that will arrange for one lower monthly payment extending over a period of time.
• Paying off multiple bills and replacing them with one, easy-to-manage payment.
• The act of paying off all outstanding debt with a single loan.

Hence, the word Consolidation - the combination of separate items or scattered material into a single mass

So Debt consolidation programs are a way to combine all of your unsecured debt (debt that doesn't have collateral) into a single monthly payment, usually with a lower interest rate.

What is Unsecured Debt?  Unsecured debt - debt that doesn’t have collateral or involves a title or lien, like an automobile loan or mortgage payment.  Debt such as:

•  
• Credit card debt
• Past due utility bills
• Medical and legal bills
• Service charges
• Unsecured personal loans
• Charge cards such as gasoline and store cards

So Debt Consolidation Programs, contact your creditors and notifies them that you are in their program, then they direct all future contacts from these creditors to them, then they negotiate to lower your payments, then they collect a single monthly payment from you to cover all your debt, some might even offer “Good Faith Rewards” if your always on time with your payments.

Do Debt Consolidation Programs Charge a Fee?

In a word, yes - debt consolidation programs charge a fee. In exchange for their services, a debt consolidation company will charge a fee, but that fee will be a small portion of the money their negotiations save you each month and paid on a monthly basis throughout the life of your debt. A typical fee might be $40 per month for a $290 reduction in monthly payments and a savings of $7,275 in interest over 6 years.

What Else Should I Know About Debt Consolidation Programs?
While you are in a debt consolidation program, all of the accounts in the program are closed. Many debt consolidation programs allow you to keep one card out of the program as an "emergency" card so that you aren't completely without credit if you need it. Beyond that, you are prevented from using any of the credit cards in the debt consolidation program to run up new charges, and in most cases you won't be able to apply or get approved for new credit cards. This will effectively rein in your tendency to spend when you shouldn't, making sure your debts are cleared up without new debts being racked up.

You are making these payments over the life of your credit agreement, probably saving about 500 – 1,000 in interest and making an extra monthly payment to a firm that has closed your accounts and is sending in your payments (something that you can do for yourself) each month.

So with the Debt Consolidation Program they are going to lower your monthly payments on the 10,000 by 10% - 50% now this is just lowering your monthly payments.  YOU still are paying the amount owed of $10,000, you are just paying in smaller doses over a longer period of time.  So if your original monthly payments combined on all of your cards was $250 and 50% reduction in your payment it is now $125.  Now it will take you 252 months to be rid of your debt of $10,000 at your old monthly payment. In that time, you will have paid $5,658.75 in interest.  With Debt Consolidation they are not removing your debt, just lowering the monthly payment amount and decreasing the amount of interest and late fees you would have to pay.  On top of this you are making $40 payments for 504months on closed accounts that they are sending in your monthly payments for.  Now really, you can send in your own monthly payments.  If you’re sending it into the Debt Counselor you can send it into your Creditor.  Now over the life of this contract with the Debt Consolidation Counselor if your making 504payments to payoff your original debt of $10,000 you are now also making 504 payments of $40 as a fee for them maintaining custody of your accounts.  This comes out to $20,160 additional to the original $10,000 plus interest you were already paying.  So now you have paid over the life of this account $30,160+ on $10,000 worth of original debt.

What does A&N DEBT NEGOTIATORS do for me?

We contact your creditors and notifies them that they are representing you in negotiating your outstanding debt with their firm. We also inform them that they direct all future contacts to the Negotiator assigned to you, then we negotiate to reduce your debt amount owed. We then contact you and give you our results.  You either say:

• Yes, I can live with that
• No, can you get them to come down further
• No, I’m not happy with that, let’s forget it.

You always have total control..  Once you make your decision and we continue on with the process, the fee is then payable based on the amount saved.

• Tags:
• Debt
• Finance