Should I Go For Debt Settlement Or Debt Consolidation?
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Debt Settlement Debt Consolidation – Both debt relief programs may be able to help you significantly in solving debt problems. The difference lies on the time it will take you to get out of debt and the effects they have on your credit rating. So before even seeking for a debt settlement or consolidation program, it would be wise to get all information regarding each of their benefits and consequences.
Debt Settlement – advantages and disadvantages:
With a debt settlement program, as much as 50% of your debt will automatically be eliminated. In this scenario, you will be able to get instant relief in your monthly expenditures and your monthly debt payments will be considerably reduced. In addition to that, since your debt will be reduced to half of the amount, you would be able to be debt free so much sooner than paying the full amount of your original debt.
The are however, disadvantages involved with a debt settlement. The major downside is the adverse effect it will have on your credit score. It is inevitable that your credit score will plummet to a low 500 or even lower once your debts have been settled. But you do get the opportunity to immediately start fixing your credit. All you have to do is be consistent on the payments of your settled debt which would reflect on your financial records.
Also, a debt settlement is regarded by the IRS as cash received or a form of income . So, you are going to be taxed for whatever discount your creditors granted you for the reduction of your loan.
Debt Consolidation – advantages and disadvantages:
Unlike a debt settlement program, your credit score will not in any way be harmed by a debt consolidation. You do not get any reduction in the principal of your existing loan but you do get lower interest rates which would make monthly payments considerably more affordable. Usually, a debt consolidation is done through a professional consolidation company wherein they negotiate the terms of your debts with your present creditors. With a debt consolidation, you would only need to deal with the consolidation company. You would be left with a single account of debt to pay and it would be the company’s responsibility to disperse the payments to your other lenders.
Your debt consolidation company will handle all the paperwork involved in the process and they will do all the cancellation of fees and closing of accounts for you. These alone would in fact lessen the stress and hassles you will be encountering if you had to go to each of your creditors yourself.
There are not many disadvantages with a debt consolidation since it does not have a negative impact on your credit rating. However, in the process, most major creditors might not be willing to grant you more credit until they are sure that you have been consistent in the payments of your consolidated loan.
Debt settlement debt consolidation- which is the more intelligent decision financially?
The answer is relative to your situation – with a debt settlement you may experience an instant relief to your budget and you might be able to get out of debt within 2 years. But remember that this has a great negative effect in your credit score.
On the other hand, if you want to keep your credit rating intact, you might want to lean more on getting your debts consolidated. It may not reduce your debt as much as debt settlement, but a reduction in interest costs will definitely make payments easier than getting no deduction at all. Besides, with only a single account to deal with, debt will definitely be more manageable. You may not be able to pay off your debt in full as fast as a debt settlement program, but it will surely reduce debt and get you out of it sooner than paying off your debt as you usually do.
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