Debt Settlement vs Debt Consolidation
Debt settlement and debt consolidation are not the same thing. While they both help reduce your debt, they each affect your credit score and pocketbook differently. Before signing up with any debt management company, make sure you understand the pros and cons of their approach. And of course, be a smart shopper before signing any contract.
Both settlement and consolidation process have their own advantages and disadvantages. Both of these choices have a single objective in common and this is to get you out of debt. In order to compare both of these options you need to understand how every step of the process happens and how to apply to these programs. It is important to understand that there are options out their for consumers that suffer from credit card debt.
The Benefits Of Debt Settlement
Debt settlement means that part of your debt is immediately wiped out by your creditor. You will find instant financial relief in your monthly budget. And the rest of your debt payments are much more manageable.
Once the debts have been paid off they will be marked paid in full or settled in full. This helps with your credit report and history. During the settlement you will be experiencing a reduction on your credit score, which you will need to repair once the debts are settled completely. It usually takes two to three years for debts to be cleared under this management plan. Debt settlement also allows you to save interest on the debts because you have a smaller amount of debt you owe and are settling at a certain amount. One problem with debt settlement is the tax liability on canceled debt you may owe. This can be as much as 600 dollars.
Debt settlement is an alternative to bankruptcy. The effects on your credit score are similar. You can recover quicker from debt settlement though. Settling your debts can be quicker than debt consolidation if you do it on your own. Consolidation can cost less if you hire the company to handle your debts. The best way to find out which option you should go with is to compare the numbers and get multiple quotes from different companies. This way you will be sure to find the fastest way to eliminate your credit card debt.
Debt consolidation is a good option when you are making your monthly payment, but your debt is spiraling out of control. There are organizations specializing in negotiating the interest rates and payment terms of your contract, so that your monthly payments become smaller. Your balance remains the same and is not reduced. This is the main difference between settling your debt and consolidating it. Consolidation makes payments smaller, but the balance remains the same. It also provides the simplicity of having one bill to track and pay, without worrying about missing multiple payments. Some companies providing this assistance do charge a fee, but some are also free, depending on which one you choose.
A Debt Consolidation Company vs. A Debt Settlement Company: debt consolidation is done through a debt consolidation company. The organization gathers your financial paperwork, analyzes it, and negotiates your debt with your creditors into a repayment plan you can afford. Debt settlement is done through a debt settlement company. The organization also gathers your financial information, examines it, but instead of designing a repayment plan, it settles your debt with your creditors for less money than what you owe.
So, when looking at debt settlement vs debt consolidation, a question will be raised as to which one is the better method. Basically, the answer to this will be based on your personal financial situation. Since debt consolidation does not negatively impact credit like a debt settlement program, many will opt for the consolidation method prior to making a settlement. However, a debt settlement plan will end the problem as soon as the payment is sent. Those looking to make their debt situation a thing of the past will discover this is the much better method.