Best Debt Relief Companies in Virginia

Debt Consolidation

Debt consolidation is a general term used to describe combining multiple payments from different creditors into one monthly payment. A single monthly payment with a lower interest rate is usually achieved through a consolidation loan.

It is important to note that debt settlement companies sometimes claim they are debt consolidation companies. Though they allow you to make one monthly payment rather than pay multiple creditors, the key difference is that they seek to settle your debts for less than you owe. Typical debt consolidation companies help you pay your debts in full with a lower monthly payment.

Process

There are many ways to consolidate your debt; however, debt consolidation companies tend to offer one of two services. The first is a debt management plan (DMP). This service is offered by credit counseling agencies and some debt consolidation companies.

Working with a credit counselor or financial adviser, clients review their monthly income and spending to create a budget. The company negotiates a low-interest rate with each creditor, like credit card companies or payday loan companies.

Most debt consolidation programs will pay lenders from a monthly payment you pay the debt consolidation company. This makes it easier for you to keep track of your debts because you only have one payment to make each month.

Trustworthy companies offer a free consultation. If you choose to become a client, there is usually a one-time enrollment fee. Companies also charge a small monthly fee for their services.

The second method is a personal loan. Some companies offer "debt consolidation loans," however this is often just another term for a personal loan. If you decide to take this route, you should makes sure that it's a low-interest loan so that you can save money in the long run.

Consolidation companies offer debt reduction by focusing on the interest rates, not the total debt amount like debt settlement services.

While debt consolidation is highly beneficial, it does rely on your personal responsibility. Debt consolidation is designed to help you change spending habits, and because of this, many customers do not fully complete the process. It's important to be disciplined and committed to your personal debt management plan.

Pros and cons

There aren't many downsides to consolidating your debt, which is why debt consolidation remains one of the most sought after methods of debt relief for customers. Take a look at the pros and cons of debt consolidation with a debt management plan:

Pros

• Lower interest rate (than your previous payments)
• Doesn't hurt your credit score
• One payment each month
• Budgeting tips and advice from credit counseling agency
• Lower monthly payments

Cons

• Long time to pay off debts (3 to 5 years)
• Suggested that you cancel credit cards

Using a loan to consolidate debt offers may similar pros; however, the savings are dependent on the terms of the loan. Your creditworthiness is a large factor in interest rates and may not provide you with substantial savings.

If your debt primarily comes from high credit card balances, you could do a balance transfer to a new or different credit card with a lower interest rate. This is one way to consolidate credit card debt. Before choosing this option, check to see what the balance transfer fee is for your credit card. You would have to be disciplined to make more than the minimum monthly payment to be effective at paying off your credit card debt.

Working with another company to qualify for a consolidation loan or enrolling in a debt management program are also good options for consolidating credit card debt.

Debt Settlement

Debt settlement is the process of negotiating with your creditors for a lower overall debt amount. Usually, consumers work with a debt settlement company to plan the best approach. Settlement companies negotiate with each of your creditors to get the debt total down. Meanwhile, you'll start saving monthly to make the lump-sum settlement payment. Those who find themselves deep in debt with few or no other debt relief options will find debt settlement a life-saving option.

Process

The process typically begins with a free consultation with the company to discuss your financial situation, debt amount, and creditors. The company then makes a payment plan based on your situation.

Trustworthy debt settlement companies do not charge any upfront fees. They are only paid once a settlement is successfully made.

Over several months, you deposit a set amount into a specific savings account. Rather than paying your creditors, you place money into this account to build up a lump-sum payment.

Once you have enough money saved, the debt settlement company will negotiate with your creditor, trying to convince them to settle your debt for the accrued amount.

If debt settlement is successful, it can lower your total debt amount, saving you thousands of dollars. Rather than paying your full balance, you may end up paying only 50 percent. Also, once a settlement is reached, you are completely finished with that particular creditor.

Pros and cons

Customers should know that debt settlement can hurt your credit score. Since a debt settlement program has you place money into a savings account rather than pay your creditors, your debts will become delinquent. Your score will drop during the process. Additionally, your debt will be marked “Settled” rather than “Paid in full” on your credit report.

If you're considering debt settlement, it's a good idea to also look at credit repair services. Some companies, like Curadebt, include enrollment in credit repair as part of their services.

Pros

• Pay much less than total debt (30 percent to 50 percent)
• Once you've settled a debt, you no longer have to worry about that creditor
• Faster than other debt relief methods
• Monthly payment into a special savings account

Cons

• Not all creditors will settle
• Negatively impacts your credit score (though still less than bankruptcy)
• Some taxes may apply

Not all creditors are willing to negotiate, and they have no legal obligation to settle. If they are willing to settle, the terms are up to their discretion, therefore you may only save a small amount.

Also, if you work with a debt settlement company, it often charges a percentage of your enrolled debt, which may also limit your savings. Though it is unlikely, you could be sued by your creditors. The settlement process can take two to four years to settle all of your debts.

Finally, if you save over $600, you may be taxed on your forgiven debt. Loan forgiveness is considered taxable income. The only way to avoid this is if you are insolvent, i.e. your liabilities exceed your assets.

Free Consultation

Every debt relief company should offer a free consultation before you are required to sign anything. For credit counseling companies, there are sometimes free financial education courses involved. During the consultation, there are a number of things you need to find out to determine whether to choose the company in question. Refer to these suggestions when preparing for your free consultation:

Ask about the client-representative relationship. It is better to work with the same person throughout the debt relief process to allow for a more personal relationship and avoid mistakes in your debt case. In some cases, companies randomly assign customers to different debt professionals for each consultation.

Ask about projected prices for your case. The cost of relief services varies depending on the kind of debt relief program chosen and where you live. Debt settlement companies will charge you a percentage of your enrolled debt (usually between 15 and 25 percent). If you owe $20,000 total in debt and your debt relief company saves you $10,000 but also charges 25 percent of your enrolled debt, you will end paying $10,000 to your creditors and $2,500 to the debt relief company. 

On the other hand, debt consolidation companies charge a monthly management fee for their debt management plan services. This fee varies by company and state.

Ask about all possible debt relief options. Though your debt relief professional might suggest one course of action, you need to be aware of all your options because each option has its own pros and cons. Be sure to understand why the professional you work with makes their recommendation and that your representative is open with you about your options.