If you are in debt, you may have started to look into debt settlement or a debt consolidation loan. Which is better? The answer to this question depends on your situation. For a more thorough look at your individual situation, contact a professional. However, here is a brief breakdown of debt settlement vs. debt consolidation.
What Is Debt Settlement?
Debt settlement is when a debt settlement company’s representative enters into negotiations with your creditors on your behalf. The representative’s job will be to re-negotiate the terms of your debts.
For example, if you are paying high-interest rate credit cards that have a large total debt amount, and you can no longer afford to continue paying them the same way anymore, then you may be looking at a Debt Settlement program. A Debt Settlement program usually consists of 1 or more unsecured debts that the consumer is looking for help with. The Debt Settlement company will negotiate with your creditors on your behalf and try to arrange a new payment arrangement that usually consists of paying off the total debt at a lower than full balance amount.
When you contact a debt settlement company, you typically have stopped paying consistent monthly payments on your debts and are looking for another way to get out of debt. Sometimes consumers have legitimate financial hardships such as a loss of a job or a divorce and fall behind on bills. Creditors understand that a Debt Settlement program may be a mutual benefit for some consumers and unsecured debts. A Debt Settlement company works as an intermediary between both parties and assists with Debt Negotiation terms which can be in one lump sum payment or over a structured repayment plan.
This is advantageous for some consumers because the newly negotiated Debt Settlement amount could be less than what you currently on a specific debt. The company will charge you a fee for this service, but the goal is to get you out of debt and your financials back under control.
What Is A Debt Consolidation Loan?
A Debt Consolidation Loan combines several debts into one debt. This can be done in many ways. Sometimes this is a new loan that could be secured with a car or another important item of value. Typically, companies find consumers by looking at credit reports for high amounts of unsecured debts, including credit cards, payday loans, personal loans, utility bills, and medical bills.
These Debt Consolidation Loan companies are very tricky and offer terms that are sometimes too good to be true. In some cases, they will call or send USPS mail flyers offering to give you a check for a large amount of money (Example: $15,000 at 5.9%) but the truth is often much different. Consumers will then call up and speak to the small finance or loan company and find out they don’t qualify for that particular offer. It is often because the consumer has a high amount of credit utilization on their credit cards and looks to be somewhat of a credit risk. The Debt Consolidation Loan company will then swap from the $15,000 at 5.9% to maybe $12,000 at 19% interest with some up-front acquisition fees. The consumer often feels pushed into a corner and often accepts these less than originally offered terms.
Good Candidates for Debt Settlement
Good candidates for debt settlement are those who have several unsecured debts and have a legitimate financial hardship. These plans are usually set up to get a consumer out of debt in 12-48 months depending on several factors. They can walk you through the process and help you evaluate your individual situation.
Contact a Debt Settlement Company
If you are in the position of not knowing the best way to handle your monthly credit card or other unsecured debts, contact a Debt Relief Specialist today to learn more about debt settlement.