The main difference between debt consolidation and a debt settlement is who’s in charge.
Debt consolidation is more of a do-it-yourself strategy where you take out a new loan to pay existing debts. Debt settlement, on the other hand, is putting all of your existing debts into the hands of a debt relief company.
Debt consolidation and debt settlement have their own advantages and disadvantages, pros and cons. Choosing which is best for you depends on your situation.
When is it advisable to opt for debt consolidation?
In debt consolidation, you’re getting a new loan big enough to pay off your existing debts. This means, all of you’re existing debts will be paid, and you’ll be left with a new loan with one lender and one single payment.
It is best to opt for debt consolidation if you wanted to make a single monthly payment instead of paying several accounts.
Debt consolidation is also the best option for you if you are paying high-interest rates on several debts. You can get approved for a debt consolidation loan with a significantly lower interest rate compared to your existing loans. This saves you money from overall interest and helps you pay off your debt sooner.
When is it advisable to opt for debt settlement?
Debt settlement is the act of withdrawing payments from a creditor and attempting to negotiate a smaller amount of payment to satisfy the debt.
However, this one is risky because withdrawing your payments will make your account severely delinquent and it destroys your credit score.
There’s no guarantee that the lender will agree to these terms and it might even result to you being sued.
It’s advisable to opt for debt settlement only if your account is already severely delinquent or has already been transferred to collections. This might work for you if the damage has been done already. That way, you have little to lose.
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