Debt Settlement

Debt Settlement Versus Debt Consolidation: Better One To Choose

FindItMore | Debt settlement is a procedure of negotiating with creditors for the sake of settling a debt for less than what is currently owned. This method is primarily used for settling a substantial debt with the single creditor. However, this same method is applicable while dealing with multiple of them.

On the other hand, you have debt consolidation, which is a perfect effort to combine debts from various creditors and then taking out one loan to pay all of them, mostly at a reduced rate and lower forms of monthly payments. This method is highly valued by consumers trying to cope up with bills for various credit cards and some other forms of unsecured debts.

Always remember that the positive and negative sides of debt settlement and consolidation are subject to vary, mainly with regard to the amount of time it will be actually used for eliminating debts. It will also focus on the credit score’s impact in the end. These two options will aim to make debt easily manageable. If used properly, it can help get out of debt way sooner and also to save bucks. Which one will you choose then? A detailed analysis can help big time.

Pros and cons of debt settlement:

The prospect of paying a lesser amount than what’s been taken previously is making debt settlement an enticing option. However, this kind of settlement has its own shares of risks too. Debt relief option is so fraught with negatives and misunderstanding that majority of financial experts would always recommend this tactic to be the last help you can get.

Ways in which debt settlement works:

Either you or your representative will make an offer to the creditor for settling a debt for less than what is currently owned. If the creditor accepts an offer, you can make proper payments and this matter seems to settle. In the meanwhile, chances are high that you will be racking up some costly interest charges and late fees on debts. This is one of the cons related to debt settlement claims.

Checking on some drawbacks:

There are times when you will ask to pay the debt settlement firm to represent you. But first, you better catch up with some drawbacks related to debt settlement option first.

  • Debt settlement firms will encourage you most of the time to stop making payments to creditors when they are actually working to negotiate a settlement. The interest, late fees and other penalties will start on adding on a currently owned amount.
  • In general instances, the normal time frame for debt settlement is around 2 to 3 years. It means you have to cope up with 24 to 36 months of penalties and late fees, adding to your amount.
  • It is not hard to state that debt settlement will have a negative impact on credit score. Failing to pay the amount in full will be marked as a negative point. Missing payments while trying to negotiate a settlement is also likely to hamper credit score.
  • Just like credit score, debt settlement will definitely have a negative impact on credit history for seven long years. It makes the task rather difficult when trying to get credit from other lenders.
  • Lenders are not always obligated to accept any settlement offer from borrowers. Some lenders even refuse to work with any of the debt settlement firms.

With such negative impacts on debt settlement, some people might wonder if this method actually works. For those quite helpless with a current financial situation, debt settlement will prove to be a short-term relief. But, the safer choice always has to be debt management or consolidation. Head towards debt settlement reviews for details.

Time for debt consolidation and its pros and cons:

If you are currently overwhelmed with so many bills arriving at your local address, debt consolidation is a relief program to try. It is only possible to get help from this service if you can curb your desire to spend more. Credit cards are the major source of financial problems. On an average scale, an American family has around 3 to 7 credit cards and will owe around $16,000 in credit card based debt. To top it all, you have a cell phone, utility and other mandatory bills on that. If you are drowning deep into credit card debt and more, debt consolidation can be an easy solution to come up with.

Pros related to debt consolidation

There are some obvious pros associated with debt consolidation. Here, you are actually simplifying the procedure of bill payments. You need to make a single payment to one lender within a deadline every month, and avoid paying multiple payments to varied creditors.

On the other hand, debt consolidation comes with some cost-saving options. The new loan involved should have lower interest rates and monthly payments.

Then for the cons:

Just like with any other debt related procedures, consolidation will have its share of cons too. The debt won’t be reduced or forgiven. You will still owe that same amount. So, if you fail to increase payments and decrease spending, this problem will be here to stay. Time can also be another issue with this loan type. You have to prepare yourself mentally to devote around 2 t 5 years in a single debt consolidation program.

You Must Read: Debt Management Plans Assisting Debt Consolidation

Major types of debt consolidation:

If you end up deciding to go for debt consolidation program, you need to make another decision. What kind of debt consolidation program are you trying to work with? There are four options available lately.

  • DMP or debt management plan
  • Personal loans
  • Balance transfer on current credit cards
  • A line of credit or home equity loan

Which one to choose:

It is rather hard to make a decision between debt settlement and debt consolidation loan. It solely depends on your current debt issues and whichever point matches your requirements the most. Each type of loan type has its share of pros and cons. So, settling for anyone randomly won’t help you in any way. Try researching about the types in details, consult a financial advisor and then settle for a plan. It might take some time, but it is all worth it in the end.

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