These two debt solutions are alternatives to bankruptcy. Many people believe that debt consolidation and debt settlement are the same debt relief solutions; however, there are important differences between the two so it is essential that you understand the differences between debt consolidation and debt settlement and assess your financial situation to determine which one will help you achieve financial freedom.
Debt Consolidation
Debt consolidation involves consolidating your outstanding bills into one payment and will enable you to have one monthly payment that fits within your budget and lower interest rates.
It is designed to reduce your interest rates and help you pay off your debt much faster. Debt consolidation is chosen by people who have many outstanding credit debts and loans with high interest rates. When doing a debt consolidation, you will have lower interest rates and only one payment to make, and you will become debt free in a fraction of the time when compared to paying on each bill separately.
Most debt consolidation programs are administered by a credit counseling or debt management company. With debt consolidation, you will meet with a credit counselor, create a budget, and the credit counselor will disburse the payments to each creditor. There is usually no minimum debt required and you must be concerned about your financial situation.
Debt Settlement
Debt settlement is designed for people who have not paid their debts in over a year or more and need to clean up the credit to purchase a large item such as a house.
Many times you cannot purchase a home if you have many debts in collections. Debt settlement will help you negotiate a reduction of your overall debt aka the principal, but if you don’t do it the right way your credit score can pay the price! If you have delinquent debts such as medical bills or credit card debt, and you have a lump sum of money saved up debt settlement may be a good option. Debt settlement is not a very good option if it involves monthly payments being put in a private trust because the process will take months, or even years, and will hurt your credit even further.
When about fifty percent of your largest creditor has been accumulates, a proposal is sent to your creditor offering a settlement in full for the accumulated balance. Each creditor is settled individually. If you are not concerned about your credit score, you can choose debt settlement. You usually must have a minimum of $ 10,000 in debt to apply for these types of programs.
When you are in overwhelming debt, it can be challenging to find the best debt relief solution. When considering debt settlement versus debt consolidation, you should have a good understanding of your financial situation. There are many credit counseling companies that offer consultation services to help people make the right debt relief solution choice.
Whether you are currently behind on your debts or are facing an overwhelming amount of debt, it is important to make proactive decisions to alleviate the debt and work towards financial freedom. You will get rid of a lot of stress and sleepless nights worrying and start living a happier and more fiscally responsible life.
