Debt Consolidation vs. Debt Settlement: Which Would Work for You?

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Nothing can be possibly worse than waking up to huge debts every day. Fortunately, there are ways to snap out of this terrifying situation. Learning how to budget can perhaps get you an exceptional financial relief.

Nevertheless, debt settlement and consolidation are the other beneficial options for quick financial aid and shorten your journey towards building a good credit score.

What Is Debt Consolidation

It is a financial process where multiple debts are rolled into a single, consolidated payment. Your debts are transferred into a master account, typically a balance transfer credit card for simplifying the payment process. The repayment term tends to get extended, letting you unload your burden in a stepwise manner.

Why Would You Choose It?

Debt consolidation may be one of the ways of imparting how to budget information. It is a method of repaying debts in an organized manner without the hassle of managing multiple bills.

● Cash savings through lower interest rates;
● Enjoy the convenience of a single payment that eliminates handling multiple payments, due dates, and creditors;
● Less impact on your credit scores;
● For getting rid of collection calls and taking time out for financial planning.

Why Would You Not Choose?

Debt consolidation is not recommended if you are looking for a quick-fix solution to your debt problems.

● It charges you overall high rates of interest by extending the loan repayment duration;
● Defaulting on a credit card balance account may lead to your assets being foreclosed, garnished, or auctioned;
● Expensive debt consolidation fee.

Debt Settlement

Here, debt settlement companies negotiate with your creditor on your behalf and have them agree on paying less than the actual balance you owe.

Remember, not all creditors may be willing to settle your debt. Typically, creditors agree to this option for consumers having multiple delinquent payments in their credit reports.

But creditors may charge-off your debt once they cross the 180 days due period. Collection agencies often handle such debts.

Hence, it is vital to settle debts before they reach the charge-off mark.

Settling an account is a much superior option than altogether preceding your payment.

This option helps you think about budgeting when you are planning on a significant purchase like a house.

Here, you can either settle or pay in full any delinquent debts for qualifying for a loan. It helps you save yourself from bankruptcy or default.

Why Would You Choose It?

● To lower your debt with effective negotiations from the debt settlement company.
● To convert your debts into one simple payment by enrolling in debt settlement programs.
● For lesser interaction with creditors and long-lasting peace of mind.

Why Would You Not Choose?

● The lender reflects a settled debt as ”settled for less than agreed”, which shows up on credit reports for seven years. Creditors may also report late payments to every credit bureau, leading to a poor credit score.
● While settlement gets you a lower debt balance, you cannot save on lender fees, interest, and taxes for the amount you still owe.
● IRS views every forgiven debt as income and hence expects you to pay taxes on the forgiven amount.

Both debt settlement and debt consolidation have a profound influence on your present and future financial condition.

However, they are committed to providing significant savings and assist in overall budget planning for your family.

Choose between the options depending on your unique needs or future monetary goals.

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