Are you confronted with the dilemma of choosing between debt settlement and debt consolidation? Which of these two possible debt solutions should you seek to end your debt problems? In order to avoid making the wrong choice, you should clearly understand the differences between debt settlement and debt consolidation. Let’s discuss what each means and how each one works.
What is Debt Settlement?
A debt settlement plan is executed by negotiating with your creditors. Through a debt settlement agreement, a borrower can decrease his original debt to about 40 to 80 percent less. Of course, this would depend on your creditors and on your present credit standing. Once a debt settlement has been agreed, a borrower must start working towards his repayment.
Resorting to a debt settlement program can reduce one’s credit score. Therefore, while completing your debt repayment, it is important to start improving your credit score as well. Considering that your debts have been reduced, it is a must to strictly follow your payment schedule without missing a payment or being late.
What about Debt Consolidation?
Debt consolidation is done by taking out a loan using your (in the US the term home property is not used house as security for the money you borrowed. Your debt consolidation loan can be used to pay all your debts to all your creditors at once. Afterwards, you can start working towards repayment of your debts to your loan consolidation company.
What’s great about a debt consolidation loan is that you’ll only have to deal with a single creditor. You can also save on the interest charges since you’ll only have to pay a single interest rate. However, debt consolidation will only work if the borrower can keep up with his loan payments on time. The borrower must also remember that a debt consolidation loan puts his house on the line so he can’t afford to fail with his payment obligations to his consolidation company. If you don’t own a home, don’t despair, there are debt consolidation companies that do not require home ownership.
Which one should you choose?
Which is the better option for you? The decision whether to choose debt settlement or debt consolidation depends on one’s situation and financial capability. If you’re not sure which one will work best for you, you can consult a legitimate credit counseling agency to help you.
Regardless of which one you’ll pick, make it a point to find a legitimate debt consolidation or debt settlement company to partner with. Check the company’s background and history. Inquire from the Better Business Bureau whether that particular company has received complaints from its clients in the past. If so, find out if these complaints have been properly resolved.
Find out what people have to say about its services. Learn and understand the terms and conditions that are included in your contract. Remember, these contracts are binding agreement and you’ll want to make sure that you are in accordance with the terms before you put down your signature.
Ultimately, the success of your debt settlement or debt consolidation plan depends on how well you were able to submit your payments as expected. Therefore, pay attention to your spending and budgeting. Pay your debts and avoid incurring new charges while still working with your repayment.