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The most common bankruptcy alternative is “credit counseling.” There are a number of credit counseling services available today in California. Credit counselors will try to negotiate on your behalf for more favorable terms on your credit card debt. Typically, these negotiations come in the form of reduced interest rates, however full payment of your debt is still required.
Credit card companies will agree to these renegotiated terms from time to time, when a credit counseling service is involved. However, some creditors are unwilling to work with credit counseling services, and the credit counseling services have no way to force them to do so and won’t defend a lawsuit if the credit card company decides to sue instead of negotiate.
What to Look For in a Credit Counselor
In most cases, it is best to use a local credit counseling organization to ensure that your credit counselor is familiar with your specific state laws. It is also important to choose your credit counselor wisely. If the attorneys or lawyers from your chosen credit counseling service do not make your payments on time or underpay a creditor you will be the one who suffers.
What About Debt Consolidation?
Debt consolidation outside of bankruptcy usually involves using a valuable asset, like your house, as collateral for a new loan. In debt consolidation, you often use one loan to pay off another, but the new loan is secured instead of unsecured. That means if you fall behind on the new loan for some reason, the creditor can take or sell the collateral. You may be able to lower your cost of credit through a new loan, but the principle (total debt you owe) remains the same, and often your home will be at risk. In most cases, debt consolidation does nothing more than turn unsecured debt into secured debt. If you can’t make the required payments, you could lose your home as well as the equity you’ve built up.
Debt Negotiation an Alternative to Bankruptcy?Debt negotiation has become a very popular business recently; however, it rarely provides the consumer with any meaningful solution. In debt negotiation, a “negotiator” simply solicits settlement offers from your creditors on your behalf. If the negotiator is successful, the creditor will expect a lump sum payment in the range of 50% of the total debt upon settlement. In addition, the negotiator will also expect a handsome reward for his “settlement”.
Debt negotiation can facilitate lawsuits if the negotiator is unable to reach a fast settlement under the “get it while you can” theory used by many banks and lenders today. Debt negotiation works best when there are just one or two old debts to “clean up” on your credit report. Keep in mind, however, that you will need to have readily available cash, because most creditors will not keep a settlement offer open for long.
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