Are you looking for debt relief, but confused about whether to choose debt settlement or debt consolidation? Both are debt relief methods and helpful in debt management, but function differently. Generally, debt settlement reduces the total debt amount owed, while debt consolidation decreases the number of lenders you owe.
Both options have their inadequacies and adversities. It depends on several factors like your debt amount, financial status, credit score, etc. Everyone is not in the ideal situation for debt consolidation or settlement.
Before you choose to go for debt consolidation after reading Amone reviews then first understand these technical terms in detail. You can check Crixeo, news, and review services. They compare services and products for consumers to help them make an informed decision.
How to determine the right approach – debt consolidation or debt settlement?
Multiple debts are combined into a single new consolidated debt. It means your old debt is paid with a single new loan. The common ways to consolidate debt are –
- A personal loan from a credit union or bank.
- 0% balance transfer credit cards
For example, if you owe $12,000 total on 2 different credit cards then opt for a personal loan of $12,000 and pay the 2 credit cards balances with funds from this new loan. However, you will owe $12,000 but it will be in one place with a single monthly payment at a low rate of interest.
Who can opt for debt consolidation?
The decision to choose debt consolidation is right for those who –
- Desire to simplify their debts and reduce the financial stress.
- Get a low-interest rate on consolidated debt.
- Are prepared to stay focused and pay off the debt altogether.
An option for debt consolidation is a debt management plan from professional consumer credit counseling services. Remember in any case you will have to pay the total debt amount.
Unlike consolidation, debt settlement is a method where the creditors agree to take fewer amounts than what you owe. It is a kind of debt forgiveness. Debt settlement is risky and needs to be a last resort. It can dent your credit score that is visible for seven years. Debt settlement also involves a disagreement with the creditors, who can sue you. Even if you succeed then the forgiven amount becomes taxable income.
Who can opt for debt settlement?
Debt settlement is appropriate for those who –
- Are out of options like cannot qualify for low-interest debt consolidation loan or have a poor credit score or are not eligible for balance transfer credit card.
- Don’t wish to declare bankruptcy because debts cannot be discharged even after declaring bankruptcy.
- Unwilling to dent your credit score.
Working with consumer credit counseling services rather than hiring a debt Settlement Company can turn out to be costly. With a debt management plan, you can stay current on bills and clear the debts without the long-term consequences and potential risks associated with debt settlement.
Consumer credit counseling services are a nonprofit organization that offers trained and certified counselors to help debtors handle their debt and money, educate on financial problems, and create a budget.