Many people often confuse debt settlement with debt consolidation, but they are in fact two very different approaches working towards the same goal. A debt consolidation loan works by combining multiple debts into a single loan at a lower interest rate, whereas debt settlement works by reducing the actual balance you owe to your creditors. Both methods allow you to reduce the number of creditors you need to pay down to just one. The big difference is one way requires you to borrow more money and the other does not.
You are still “consolidating” your debts into just one payment but the process is different.
Settlement and consolidation also have big differences when it comes to qualifying for each program. You must have an excellent, 720+, FICO score to qualify for a consolidation loan. There are no credit score requirements for a settlement program.
Both options have their advantages and disadvantages too. Settlement will normally get you out of debt faster while paying less, but consolidation has less impact on your credit.
So in deciding between the two, you need to decide which is more important: to fix a debt problem or fix a credit score problem. You can either get out of debt and have an improved debt to income ratio and then fix your credit score or you can remain in debt for years if not decades, seeing your credit card balances barely budge when you send in your minimum payment and maintain your good credit score.
Which option sounds better to you?
If it were me, I’d rather be out of debt and save money each month by not sending in it to my creditors and their high APR charges. You can quickly rebuild your credit to buy a car or home when you have no credit card debt.
If you are experiencing a severe financial hardship, you owe it yourself and your family to get all the facts about debt settlement before you make a decision.
Why would a creditor accept any less than the full amount that’s owed? Because getting less is better than getting nothing at all. The creditors and debt collectors have an incentive to accept a small piece of your account now than wait for years to get a trickle through a bankruptcy repayment plan or nothing at all if you file Chapter 7 bankruptcy.
Every year in the United States, over 1 million people end up going bankrupt. With the exception of Chapter 13 bankruptcies, an individual who successfully files for bankruptcy is absolved from all debts after the few assets they have are distributed through the court system.
Therefore, when a creditor is owed money by an individual that may end up going bankrupt, their options are generally partial or lower payments through debt settlements before it happens; or, if the individual ends up going bankrupt, little to nothing.
Feel like you’re drowning in debt? You’re not alone. Millions of Americans now more than ever are struggling with their finances.
So – under the right circumstances, debt settlement works in favor of both the creditor and the individual struggling with their debts;
- The creditor is not likely to receive full payment, but they will get more than they would through the debtor claiming bankruptcy.
- The individual in debt can restore their credit rating while avoiding the hardships of bankruptcy by making the newly arranged payments.
Ultimately, whether you decide to pursue debt settlement help or other alternatives to your financial situation is up to you. Whatever you choose – be sure to do your research carefully before making a final decision, your financial future is at stake.
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