Debt Settlement vs. Debt Consolidation
Debt settlement and debt consolidation both have advantages and disadvantages. Which option would best fit your situation?
When you are in a financial bind, it is easy to make rash decisions before doing your research. Since you have landed here, it is clear you are on the right track and looking for help.
This article provides you with information regarding the differences between using a program of debt settlement vs debt consolidation loan. Choosing between Debt Settlement vs Debt Consolidation loan could result in a significant impact on your credit score.
How Debt Settlement Works
When choosing debt settlement as a debt relief option, you can become debt-free within a few years. A debt settlement company will evaluate your debt and help you decide which program is best for you. With a typical debt settlement program, a consultant will help you negotiate with your creditors to reduce your overall debts. A debt settlement expert will try to settle debts with a lower-cost lump sum payment or lower monthly payments with lower interest rates and costs.
Debt settlement companies do charge a fee ranging from 15% to 25% of your total debt. You can negotiate terms yourself with the creditors. However, you may be required to have at least 40% to 70% of the total settlement amount agreed upfront.
While the initial impact can be damaging, you should see continuing improvement throughout the process of the program. The Fair Credit Report Act (FCRA) ensures that creditors must report each settlement accurately, which in turn helps your credit score go up.
How Debt Consolidation Works
Debt consolidation loans are a much riskier option; however, when consumers have not done their research, it is likely the first option they choose. A debt consolidation loan is essentially taking all of your high-interest loans and credit cards and transferring them to a different loan or credit card with a higher balance.
This option leaves consumers with only one payment to make. This approach appears to be the greatest option at first, until people begin to use credit cards with no balance to maintain their current lifestyle.
Now consumers will have another monthly payment and higher debt-to-income ratio. This can lead to a disastrous financial downfall if consumers are not disciplined. For this reason, it is advised to cancel all other credit cards and refrain from applying for more credit.
Choosing a debt consolidation loan has higher associated costs than using a debt settlement program. Debt consolidation loans typically take longer to repay since the total amount of debt has not decreased by much.
While debt consolidation loans may help some consumers, they do not work for everyone.
When Will You Benefit from Choosing a Debt Settlement Company?
No one plans to be in debt. Sticking to a strict personal financial budget from the beginning is the key to success. However, when you are not successful with your debt management and your debt-to-income ratio is out of control, it is time to speak with a debt settlement consultant.
The following are key points of when you could benefit from choosing a debt settlement company:
1.You can no longer keep up with the minimum monthly payments required for loans and credit cards.
2.You have debt collection agencies calling to collect these debts.
3.You have multiple accounts that are in delinquent payment status.
4.You are not in the market to buy a home or other large purchase.
5.Your credit score being negatively impacted for a short time is not an immediate concern.
When Will You Benefit from Choosing a Debt Consolidation Loan?
If your debts and spending habits are still within your control, then a debt consolidation loan may benefit you. You will be lowering your monthly payment by getting rid of the high-interest credit card payments.
The following are key points that illustrate the benefit of choosing a debt consolidation loan:
1.Your credit history has been managed well, and you can receive a debt consolidation loan with good interest rates and terms.
2.Saving money on lower interest rates is a must, but the longer length of the loan is not an issue.
3.You have trouble making current monthly payments, but you know you will be able to make the one monthly payment to the debt consolidation loan.
4.Preserving your credit score is important to you as well as maintaining your credit history for future purchases.
5.You are disciplined enough to refrain from accruing more debt.
Debt consolidation typically takes several years more than a debt settlement program. However, consumers will know what their monthly payment is, usually receive a fixed interest rate, and have a pre-set payoff date for their debts.
Avoid using Non-reputable Debt Settlement Companies
The Federal Trade Commission (FTC) has rules in place to protect consumers from scammers. Check the Better Business Bureau (BBB) and Review sites before making a decision to enroll with any debt settlement company. Do not use a debt settlement company which promises to erase a percentage of your debt. A reputable debt settlement company will ensure you are aware of all the risks of using one of their programs.
You must do your research and talk with experienced debt consultants to ensure you are choosing the right debt settlement company, as they are not all created equally.
Choosing a Credible Debt Settlement Company Like Roundleaf Inc.
With Roundleaf’s debt settlement program, our consultants help you negotiate with your creditors to reduce your overall debts. We work with you and your creditors to make sure the agreement is not only fair to you but also fits within your budget.
We even help you determine which creditors to pay off or negotiate with first. Typically, we focus on the debts that will improve your credit score the most. On average, many of our customers see a reduction of 50% or more in their total debt amount. This enables you to make lower monthly payments.
Our experienced consultants at Roundleaf Inc. are prepared to analyze your current financial situation and provide you with the best option through education and planning. Our goal is to help you obtain financial freedom as quickly as possible. Contact us today to see how we can help you with your specific situation.