Is debt settlement a better option than debt consolidation?

Debt for consumers is growing by leaps and bounds. More than a billion individuals are truly in debt they cannot handle. In order to understand what type of debt management plan may be best for you, you need to know what they are. Debt Settlement vs. Debt consolidation talks about the two choices you have with a debt management plan. Debt settlement varies in use to the debt consolidation in several ways, which we will look at below. Remember that creditors want to receive payment from you rather than seeing the entire account lost because of a bankruptcy.

How Debt Settlement Works

The first thing you should know regarding settlement vs. consolidation is how settlement works. Settlement will allow a person to lower their debts by 40 to 80 percent depending on the companies you are dealing with, as well as the credit standing you currently have.

Once the debts have been paid off they will be marked paid in full or settled in full. This helps with your credit report and history. During the settlement you will be experiencing a reduction on your credit score, which you will need to repair once the debts are settled completely. It usually takes two to three years for debts to be cleared under this management plan. Debt settlement also allows you to save interest on the debts because you have a smaller amount of debt you owe and are settling at a certain amount. One problem with debt settlement is the tax liability on canceled debt you may owe. This can be as much as 600 dollars.

What is Debt Consolidation?

Consolidation uses your home equity to pay off debts. When you use consolidation vs. settlement you are obtaining one loan, a reduction in interest, and one payment. Debt consolidation is not a reduction of the amount you owe, just the interest unlike Settlement. Usually under debt consolidation it takes three to five years to pay off the balance. The credit score is also going to have a short term affect and the debts will be marked paid in full. A con to debt settlement is the slow pay status you may receive on your credit report as a result of the debt consolidation. However, these marks go away in time, much faster than your original debt would.

Debt consolidation uses a loan which is not considered a secure loan. In some cases you are able to get a secure loan through the home equity loan you will take out. This could pose a small problem as you are endangering your home if you cannot make the repayments.

Take Action!

Debt settlement vs. Debt consolidation is something you need to consider when you end up in debt. We have outlined what each debt plan is as well as looking at the pros and cons of each. It is important that you take action early whether you are using debt settlement vs. consolidation to solve your problems. The longer you wait to take advantage of either debt settlement or consolidation the harder it will be for you to seek help. Companies recognize a proactive stance and are more willing to help you out than if you wait until you are two steps away from bankruptcy court.

By: Lance Tanner

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