If you’re struggling with managing your debt, then you could consider either debt settlement or consolidation. Both debt settlement and consolidation are both types of debt relief which can aid you in managing your debt, however they serve different purposes. The general rule is that debt consolidation decreases the amount of debt you owe. On the other hand, debt settlement decreases the total amount you owe in debt, go to consolidation now.
Each approach has its own pros and disadvantages. Not every person is in a good situation to pay off or consolidate debt. Based on your financial situation as well as your credit score, the quantity of debt, and other aspects the debt consolidation process or settlement could or might not be beneficial.
This article will explore the debt consolidation process, debt settlement, and the best way to choose which option or which is the best in your current financial circumstance.
Consolidation of Debt
The process of debt consolidation is a kind of debt relief that consolidates multiple debts into a single consolidating debt. Instead of having to pay numerous creditors and making several monthly installments, debt consolidation allows you to consolidate your debts into one total. Some of the most commonly used methods to consolidate debt are 0 percent charge for balance transfers as well as loan consolidation for the debt or personal loans offered by banks or credit unions.
In the majority of cases, with debt consolidation the old debt is eliminated through this new loan. In the example above, if have a debt of $15,000 on three credit card accounts, then you can take out a personal loan of $15,000 and pay off the outstanding balances of the three credit cards using the money you receive from the new loan. It’s still $15,000 owed however the amount of debt will be together in one location with one monthly payment and, possibly, with a lower interest rate. If a loan for debt consolidation is backed by an interest rate lower than the market rate it allows you to pay off your debt quicker and at a lower cost.
It’s crucial to keep in mind that you’ll owe the same principal balance even if you opt for the consolidation of debt. If you choose to continue borrowing in addition to your consolidating debt, you could face financial problems.
Debt consolidation could provide greater visibility and control of your credit card debt. Consolidating all your debts into one may give you more motivation to settle the debt for good.
When Debt Consolidation makes sense
The option of consolidating debt could be the right option for you depending on the circumstances:
- You’re trying to simplify the burden of your financial obligations. Instead of multiple installments and debts it is possible to consolidate all your debts in one. If you’re having difficulty making multiple monthly payments consolidating debt can assist in lessening your financial stress.
- You could get lower interest rates. Debt consolidation may be a wise option in the event that you are able to get lower interest rates for the consolidated debt. For instance it is possible to combine several high-interest credit card balances into a limited-time, zero-interest Balance transfer credit card it could help you get rid of your debt quicker.
- You’re now looking for a strategy to pay off your debt. Even if you’re not facing financial pressure Debt consolidation can help to bring rid of debt, or eliminate your debt completely. If you’re looking to concentrate on the process of paying off debt, debt consolidation could aid in reducing the interest rate you pay, become more organized in the process of paying off debts, and help you to be in a better financial situation.
Options for Debt Consolidation Alternatives
Consolidating your debts is something you handle on your own. However, you might require a more specialized level of support. One option is the debt management program through a credit counseling service.
If you’re in financial difficulties, consumer credit counseling can assist you in paying off your debts by establishing the perfect payoff strategy for you. If you enroll in this kind of program, the service for consumer credit counseling will meet with your creditors in an effort to lower the interest rate and charges.
When you sign up for a debt management plan typically, you make one monthly payment to a agency for consumer credit counseling and they then forward the payments towards your lenders. They do not negotiate the quantity of the debt. However, they can help you create a plan to settle your debt while aiding in the reduction of fees and costs.
The process of settling your debt is another type of debt relief, which is often compared with debt consolidation, however it’s a completely different. Contrary to debt consolidation, where you pay off the total amount of your debts and debt settlement is a type of debt forgiveness, where the creditors of your debt agree to pay a smaller amount of the debt you have to pay.
The process of settling debts can be risky and is typically considered as a last resort option. When you’ve tried all options the debt settlement option may appear as a good option. Even so there are many experts who recommend considering different options.
It’s crucial for you to know risk. The typical process of debt settlement is to become over your due payments on your credit cards and then agreeing with creditors for a lesser amount of the debt. This could harm your credit score and show on your credit report in the period from seven to seven years. There’s no guarantee that your creditors will accept to pay off your debts, but they could opt to pursue legal action against you to recover the debt. If you are successful in getting any debts dismissed the forgiven funds could be taxable and filed with the IRS and you must pay tax on the amount you’ve forgiven.
The option of debt settlement can be one you can do by yourself if you feel comfortable speaking with your creditors and requesting to negotiate a settlement on your debts.
There are companies offering debt settlement who will bargain with your creditors for you for a cost, which typically ranges from 15 25 to 25 percent of the total debt. In the course of the debt settlement process they will request you to make monthly payments to an account they have set for you. The money is used to pay off the settled debt balance following discussions with the creditors.
When Debt Settlement is a Good Idea
It can be risky and difficult. There’s always a better option but if that you’ve exhausted all options, the debt settlement option could be an option
- There’s no choice. If you have not perfect credit, and don’t wish to make an application for further loans and don’t meet the requirements for a debt consolidation loan with a lower interest credit or credit card to transfer balances You might want to consider the option of debt settlement.
- You shouldn’t declar bankruptcy. If you’re not in a position to declare bankruptcy, and have debts which aren’t able to be discharged through the bankruptcy process, an arrangement for debt could be a viable alternative.
- The decision is to be a victim to your credit rating. If your debts are so overwhelming and overwhelming that you’re willing to take the hit to your credit report because of debt, you can seek the option of debt settlement.
Other Alternatives for Debt Settlement
Instead of utilizing a debt settlement firm, you’ll usually find a better deal for your overall financial position through a consumer credit counseling company. Instead of becoming indebted on your bills and possibly damaging the credit rating, credit counseling will help keep you current on your debts and settle debts without the risks and long-term consequences that come with debt negotiation.