Excessive debt is a problem that plagues many Americans. While there are several different ways to handle debt, two of the most commonly used options are debt consolidation and debt settlement. If you have been considering a way to help eliminate your debt, one of these two solutions could be the answer to your problem. Here are a few things to consider about debt consolidation and debt settlement and what they can provide for you.
The debt consolidation process is essentially combining all of your debts into one account. This is typically done by taking out a loan and using the funds from that loan to pay off all of your accounts. You will now have all of your debt transferred onto one particular loan. This process allows you to focus all of your attention in one place. When you have debt that is spread out over several different accounts, it can be very difficult to decide which debt to pay down first.
Without consolidation, you have to worry about multiple interest rates and many different payment due dates. This makes the entire process much more confusing and will usually result in missing payments at some point. By consolidating all of your debt, you will only have to make one single payment per month. This allows you to plan in advance for the payment and make sure that no late fees are involved.
Typically, you will be able to secure a much lower interest rate with this type of loan than you would have on your debt accounts. Most people are trying to consolidate credit cards which typically charge over 20% APR. This could be a substantial savings for you and help you apply a more of your money toward paying down the debt instead of paying someone interest.
Debt settlement is another process that is commonly used to help eliminate debt. With this process, you are going to negotiate a one-time payment to eliminate your debt. This results in the creditor taking less money than what you owe on the debt.
Debt consolidation will typically require you to make a large lump sum cash payment. You will usually have to negotiate a settlement with each of your creditors if you have multiple accounts. This can be done on your own or with the help of a lawyer depending on your situation.
Debt consolidation should not have any impact on your credit because you are simply taking out one loan to pay off others. However, with debt settlement, you are not living up to your end of the original agreement with your creditor. Therefore, this will usually negatively affect your credit substantially. A debt settlement will typically stay on your credit report for up to seven years. This means that you should take into consideration the long-term impacts that this decision could have.
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