The debt settlement vs. debt consolidation argument has been raging for years, and there will never be a clear cut advantage that one has over the other. The situation that you're in as you head into getting out of debt will determine which method is right for you. This article will take a look at the pros and cons of each one so that you can make an intelligent and informed decision when it's time to choose.
Before we dive into the pros and cons, let's have a quick rundown of what each on is. Debt settlement
is an offer that either you make to the creditor or they offer to you that will be the amount of debt that you owe at a reduced rate. You'll pay the entire amount back in one lump sum payment or over a few short payments. Debt consolidation
spreads the payments out over several years. A debt consolidator will negotiate your debts down as low as they can and create a monthly payment plan for you to pay directly to them. Debt consolidation is also sometimes done by the individual with a loan from the bank to pay all the debt at once, then the loan is payed down each month.
Debt Consolidation Pros and Cons
The main pro of credit consolidation is that you're going to get yourself out of debt, this is obviously going to be the same for a debt settlement, but achieved a little differently. The best time to use debt consolidation is when you don't have any chance of getting the money to pay your debt settlement in full.
The biggest pro of using a debt consolidator is that they'll do the work for you and use their negotiation skills to get you an affordable monthly payment. I know that affordable is a relative term, but as you'll read below they'll work with you to make it so.
Another pro of bill consolidation is that the consolidation company will usually work with you to help you get the rest of your finances in order as well. This will usually involve teaching you to create a budget and stick to it.
The main con of consolidation is that it takes a long time to get you out of debt. The average consolidation term is between five and seven years, but this varies depending on the amount you owe and what you can afford to pay each month. Debt consolidation also hangs around on your credit report for a while, but this is only a con if you have decent credit going into it. If your credit is already in the gutter, it can only go up!
Debt Settlement Pros And Cons
Aside from getting you out of debt, the main pro of a debt settlement is that you pay the money and you're done - that's it. Depending on how you deal with the creditor, you may be able to save more money with a debt settlement. There are reports of people getting away with paying fifteen to twenty cents on the dollar for their debt settlement, pretty remarkable. You're probably going to save money every time with a debt settlement since you'll be the one doing the work, and not using the services of a debt consolidator.
The biggest con of debt settlement is that you've got to pay that huge chunk of money all at once. If you owe a lot of money (10k+) that'll be a hard check to write, even if you have the money in the bank. Some creditors will offer a short payment plan option, but it is usually only three or four payments that you have to make the payment.
Just like debt consolidation, a settlement will hang on your credit report for a while.
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