When facing mountains of debt, many people begin to search out their debt relief options. One of the most tricky aspects to debt relief has to do with the type of debt. Secured debts, like a mortgage or car loan, are more difficult to resolve since the lender holds the power of foreclosure or repossession. Unsecured debts, such as credit cards and medical bills, are easier to manage but also come with some traps that should be avoided.
Consolidation vs. Negotiation
Many people have heard of debt consolidation, which aims to roll your unsecured debts into one lump payment. This can occur either through transferring credit card balances into a single credit account or taking out a consolidation loan. While this may provide some small benefits in interest rate and monthly payment reduction, it can also be a trap for the irresponsible spender. In many cases, people consolidate their debts into one account with the intent to make payments towards the debt balance. What generally happens is the accumulation of more debt on the newly freed credit accounts.
Debt negotiation can provide a better alternative for those with loose wallets. By entering credit negotiations with the lender directly, a debtor can secure a lower interest rate or monthly payment on each individual account. This maintains a certain level of responsibility to individual creditors while keeping the awareness of balances on each account. With debt balances spread among respective creditors, a debtor is less likely to be enticed into further debt accumulation.