Debt Settlement vs Debt Consolidation Get The Facts First And Make Your Decision Wisely.
Debt settlement vs debt consolidation choose the best program to control your debts. Tread carefully before committing to one or the other. Get the facts first and make your decision wisely.
You may consider debt settlement or debt consolidation when it comes to eliminating your debts or even just reducing them. Each solution has its own merits and they operate in somewhat different ways. Each also offers a different impact on your credit score as well as financial options that you may seek out in the future.
Comparing Debt Settlement Vs Debt Consolidation
What can a settlement do for Me?
Debt settlement offers you three distinct advantages:
- Settle debts at 30 percent to 50 percent of the original amount
- Fast relief in only a few months
- Simple online enrollment forms
A settlement is generally a method of reducing your debts through a lower balance, payments or interest. It means that your creditor will do away with a portion of your debts which, in turn, frees up more room in your monthly budget. What’s more, your remaining payments are much easier to manage.
When considering debt consolidation vs debt settlement, a settlement will make fast work of rebuilding your credit. When you stop battling high debts and those expensive late payments, you have more time and energy to focus on managing your credit and building instead of just keeping your head above water.
What are the Drawbacks of Debt Settlement?
When considering the way that the credit companies view debt settlement vs debt consolidation, understand that a settlement is usually viewed in the same light as a foreclosure. It can knock your credit score to 500 or even lower.
You will be able to improve that, but it will take a couple of years. In the meantime, you will have to work with lenders who are sub prime which means you won’t get the perks like better interest rates.
Another drawback is the fact that the IRS views a settlement the same as if you received income or a cash gift. This means that you may be required to pay taxes on the amount that you did away with in your settlement.
What are the Benefits of Consolidation?
Debt consolidation offers you three distinct advantages:
- Make a single payment
- Extra time to make payments
- Wipes out several debts at once
Consolidation is another alternative to a debt elimination program. It allows you to make one monthly payment to one company. That company works with your creditors to negotiate lower payments and rates. When you make your payment to that company, they turn around and pay your creditors.
When looking at debt settlement vs debt consolidation, a major benefit of consolidation is that the consolidation company will do all of your paperwork for you, cancel your feels, close your accounts and basically take care of everything. Short term debts can be cleared up in five years, or even less time.
What is the Downside of Debt Consolidation?
You won’t see so much of an impact on your credit score if you use a consolidation loan. What’s more, many lenders will place a temporary hold on extending additional credit to you. Once they see that you are making regular payments, they will lift that, though. But if you do a consolidation loan, make sure that you regularly monitor your accounts in order to ensure that the debt consolidation company is doing what it is supposed to and is making payments on time.
So, How do I Pick the Right One?
There is no magic bullet for debt elimination. Debt settlement can help you see an instant improvement in your finances, but at the cost of your credit score rating. Consolidation simplifies the process with minimum affect on your credit report, however it does take longer to complete the process.
But when looking at debt settlement vs debt consolidation, keep in mind the benefits as well as the downsides of each solution and choose the one that best suits your situation.
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