Steps For Determining If Debt Consolidation Is Your Best Option

Step 1:
Determine how much unsecured debt you have. Request a copy of your credit report from one of the main credit reporting agencies. You could also access it online via an online credit monitoring company like Experian or MyFICO.

Step 2:
Do you qualify for a debt consolidation loan? Contact a few different debt consolidation agencies. Review their qualification requirements. In most cases, you need to own your own home to qualify for a debt consolidation loan. Debt consolidation is a home equity loan and thus makes your mortgage payment larger. Other qualifications may include a minimum FICO score, steady employment, and a minimum monthly income.

Step 3:
Find out how much you will save with a debt consolidation loan rather than paying your credit cards' minimum payments. Ask the debt consolidation loan company to give you a quote. Check the figure.

Step 4:
Determine if you can afford to make a larger mortgage payment. To figure this out, subtract from your monthly income, any food, transportation, and insurance costs. If you don't have enough money to cover a larger mortgage payment, then debt consolidation is not right for you. If you do, go to the next step.

Step 5:
Determine if the benefits of debt consolidation outweigh its complications. Debt consolidation can lower monthly payments and reduce interest rates for your unsecured debt. Plus, you only have to make one payment, and you can write off the interest. However, with debt consolidation, it will take you longer to pay your bills. Before you're done, you may be tempted to use your credit cards again. Plus, you will spend more money in interest over the life of the loan. You could also lose your home if you can't make your payments.

Steps to Determining If Debt Settlement Is the Best Option For You

Step 1:
Determine how much unsecured debt you have. Request a copy of your credit report from one of the main credit reporting agencies. You could also access it online via an online credit monitoring company like Experian or MyFICO.

Step 2:
Do you qualify for debt settlement? Generally, companies offering debt settlement only work with people who owe more than $7,500. There may be other requirements as well. Read through the information provided by the debt settlement company. Make sure you meet all the requirements.

Step 3:
Determine if you have the money for debt settlement. Subtract from your monthly income your normal living expenses, including housing, transportation, utilities, food, and insurance. If you have money left over, then debt settlement may be right for you. If you don't, you should not try debt settlement.

Step 4:
Search for a debt settlement company. Don't sign with the first company you find. Instead, read through what services they provide and what they expect from you. Look for companies that have been in business for a while. Make sure they have been approved by the Better Business Bureau.

Step 5:
Decide whether debt settlement is right for you. With debt settlement, you can reduce the total amount you owe and improve the relationship between you and your creditors. Also, you can pay your debt quicker as long as you remain faithful to the settlement offer. Debt settlement can also incur potential tax problems, and may hurt your credit rating. It may encourage your creditors to initiate law suits against you. Also, it could increase the frequency of calls to you by your creditors.

Steps for Comparing Debt Consolidation and Debt Settlement

Step 1:
Compare the short-term benefits of each debt solution option.

Step 2:
Compare the long-term benefits of each debt solution option.

Step 3:
Determine which option is best for you. Which program do you qualify for? Which one offers the best overall benefits? Which one can you afford?