Debt settlement and debt consolidation
may seem on the surface to be the same. After all, at
least a part of the results are the same because you’re
going to be eliminating at least some of those debts.
But there are some major differences between the two
and you need to understand both concepts to decide which
is the better option.
Let’s start with debt consolidation. The word
“consolidation” means to combine. If you’re
looking for some method of debt consolidation, you’re
looking to combine some or all of your debts. There
are several ways and reasons to accomplish this.
If you have several credit cards, the total monthly
payment could be pretty high. If you consolidate those
debts, you’ll have a single monthly payment. For
some people, that’s simply easier, even if the
total amount due is very similar.
One way to achieve debt consolidation is to take out
a loan to pay off those debts. Think there’s no
point, Another important point when it comes to debt
consolidation is It may seem pointless to take out a
loan to pay off other loans, but take a look at the
interest rate. Those credit cards likely carry some
pretty high interest rates. A fixed rate loan at a lower
rate could result in significant savings over the course
of the payoff.
Now consider debt settlement. In many cases, debt settlements
are only offered after you’ve fallen behind in
your payments. Sometimes, creditors will offer to let
you off the hook if you pay a portion of the amount
you owe. In return, the creditor will wipe off the balance
of your debt, effectively leaving you with a clean slate.
There are some potential negatives to this plan, as
well as some myths about debt settlement.
Some people believe that individuals can’t negotiate
debt settlements. You don’t have to hire either
an attorney or a credit counseling agency to get a settlement.
The advantage is that those people have experience making
those arrangements and often know how much they can
ask for, thereby getting you a better deal.
There are some negatives to this course of action and
you need to be sure that the debt settlement plan includes
clearing your credit history with that company. Otherwise,
the balance you owe can remain on your credit report,
lowering your credit score and giving the impression
that you have an outstanding balance. Another important
point is that you may be giving up your right to ever
have credit with that company again. Of course, if you’re
having trouble making payments you may already have
crossed that bridge.
Both debt settlement and debt consolidation have one
major positive effect – the collection calls will
stop. If you’re having trouble meeting your monthly
payments, it’s in your best interest to take some
action as soon as possible. The longer you wait to consider
a debt consolidation loan, the fewer options you’ll
have and the more your credit score will suffer. It
only takes a minute to fill out an application for quotes
that could put you on the fast road to recovery. |
