Distinguishing Between Debt consolidation and Debt Settlement

As more people continue to struggle against the economic slump, debt consolidation companies and debt settlement companies are becoming more widely used.

Debt consolidation and debt settlement are two different forms of debt relief. They can both help you reduce your overall debt burden, but they involve different approaches and have different outcomes.

Both offer the potential of reducing your total debt by paying off multiple loans with a single payment, but there are key differences between the two processes.

While debt consolidation and debt settlement are the two most common strategies for managing high levels of debt. It is important for individuals to understand the differences between these options in order to decide which strategy best fits their financial situation.

Two Different Debt Relief Programs

Debt Consolidation

Debt consolidation companies usually offer a loan to pay off all the borrower’s existing debts img-3with a lump sum payment. By paying off all debts at once, the continuous accumulation of debt can be prevented. Consolidating debts give the borrower a chance to pay lower monthly fees with a reduced rate of interest.

However, only unsecured debts can be consolidated. It is important to remember that a consolidation loan is a secured loan that requires collateral. As a borrower, you will be required to submit your property as security for the loan. The repayment term for a loan consolidation can extend for a longer time and during this period, a borrower must stay consistent in submitting payments to avoid the risk of repossession.

It is also crucial to choose the right debt consolidation company. Make sure that you will not be charged with hidden fees and that your interest rate will remain reasonable throughout your loan’s term. When consolidating, analyze your lender’s Terms and Conditions before signing up.

Debt Settlement

Debt settlement is the process of negotiating with creditors in order to reduce the amount to be paid. As much as 75% can be cut off from the total amount of debts owed. Most lenders will agree to reduce the repayment provided that the borrower can submit a lump sum payment right away. Debt settlement companies often negotiate on behalf of the borrower and also provide the loan that will be used for payment.

In turn, the borrower will be subjected to pay the debt settlement company with interest. This may sound like a great arrangement yet some debt settlement companies may take advantage of your situation by charging excessive interest rate and fees. This is why it is very important to seek the right company for help.

Consumers must also be aware that they can do a negotiation with creditors on their own. There are credit counseling agencies that can give you advice on how to do a proper negotiation with creditors. However, you need to be prepared to submit your repayment according to terms you’ve negotiated. In this case, you may still have to apply for a loan or try to borrow money from a friend or relative. Still, the advantage of settling debts is that you won’t have to borrow a very large amount of loan to pay off your debts.

In conclusion,debt consolidation and debt settlement are two viable options available to those with a lot of  debt. Debt consolidation is the most suitable option for those who can make regular payments on their debts and have a stable income.

On the other hand, debt settlement is more suitable for those who cannot make regular payments and want to reduce their total debt amount. It can be difficult to determine which one is right for your situation, so it’s best to consult a financial advisor or credit counselor before making any decisions.

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

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NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

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