Debt: it’s a fact of life. In fact, American households hold more than $14 trillion in debt, which is an all-time high. The question is, what should you do with your own debt?
As Always, Consult Your Financial Professional regarding your specific situation.
There are a couple of options, including weighing debt settlement vs. debt consolidation. While they will both deal with your debt and provide some relief, the outcomes and the rules for qualifying are different.
But which one is right for your situation? Read on to learn more.
As the name suggests, this approach lets you roll your loans into one, usually at a lower interest rate. There are several ways to achieve this, including a debt consolidation loan from a lender that pays off your other accounts. If you have equity in your home, you might be able to tap into it for this purpose as well.
Debt consolidation can be an option if you’re having trouble keeping up with payments, or if you want to pay off loans faster. You’ll end up with one loan payment, so you won’t have to remember all the due dates for individual accounts.
One thing to keep in mind however is that you need a qualifying credit score for debt consolidation. Because you’re borrowing, a bank will follow the same sort of procedures as it would for any type of loan.
• Lower your interest payments
• Pay off high-interest credit cards
• Deal with one financial institution
• Stop collection calls
• It can several years to pay off a consolidation loan
• You may end up paying more interest over the loan’s term
• There could be consolidation fees depending on the lender
• You may impact your credit score if you continue to use credit cards
• There are fraudulent lenders, which is why to use BBB-approved companies like Debthunch
This approach is designed to lower the amount of money you owe to creditors. It is generally used by people who have fallen far behind on payments or are in collections.
However, while it can be successful in some cases, in others cases creditors can sue to recover money owed to them. There is no obligation for a creditor to agree to a debt settlement proposal, whether you’re trying on your own or with the help of a firm (which can be fraudulent, especially if they ask for money upfront.)
• Generally no minimum credit score is required
• Possibly avoid being sued for collection
• You can knock off a large portion of what you owe (not including fees and interest)
• The settlement will show up on your credit report for 7 years
• It can take a lot of time, meaning you’re possibly accruing interest and penalties
• You will need to make a lump-sum payment of the remaining balance
• There’s no guarantee creditors will accept the terms
Debt Settlement vs. Debt Consolidation: Which Is Best?
When it comes to the debate between debt settlement vs. debt consolidation, it comes down to your situation. If you want to roll high-interest loans into one, then debt consolidation might be better.
If you’re far behind on payments, debt settlement might be the way to go—but keep in mind you’ll need cash to pay off the balance.
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