Seeking out debt relief can often feel like a scary and lonely process. You can be assured that you are far from being alone. Not only are there people in the exact same boat as you, but there are debt settlement companies out there that are looking out for your best interest. I know that might be hard to believe. With a simple Google search, you become inundated with a wave of companies all clamoring for your attention (and your money). And while every debt settlement company is a business and they all need to make their money too, there are ones out there who are sincerely looking out for your needs and your best interest.
But before we get to that, the big question when it comes to your own family’s finances and individual situation is: Do I need to settle my debts or do I need to consolidate my debts?
The most obvious positive aspect of either settling or consolidating is the fact that you can avoid bankruptcy and repossession of your home, car, or other things you hold dear and depend on. But thinking out a strategy is your first move.
With debt settlement, you’re not replacing your current debt with a new loan. Instead, reaching a settlement involves a series of negotiations between the debt relief company you have chosen to represent you and your current creditors. The process often goes far beyond simply one round of talks. In fact, if your representatives at the debt relief company are smart, they’ll use the strategy of prolonging the settlement negotiation process as much as possible to make your creditors eventually cave to their demands.
The goal is to reach an agreement that allows you to pay off a lower amount than your current balance, usually in a single lump-sum payment.
Your creditors have every right to refuse to negotiate and to refuse any offer you give them. This is particularly important when choosing a debt relief company. There are companies out there that creditors are more wary of than others. Even still, it’s typically possibly to pay off substantially less than the amount that you currently owe if the creditor believes that it is their best chance to recover as much of the money as possible from you. Though it’s true that bankruptcy costs you money, it also costs them money, and is something they’d like to avoid if possible.
Expect your account with the credit card company or whatever lender it is to be closed permanently after the settlement is made. It’s doubtful the creditor will not want to continue to grant you credit once all is said and done.
It’s also important to point out that your credit score may be negatively impacted by a settlement, and it may be hard to receive approval for credit in the future. Even still, the prospect of a clean slate and getting out from under the crushing weight of debt is enough for most to take these risks on.
When you go with consolidation, it means you take out a single loan that consolidates and replaces all of your existing debts into one monthly payment that you can afford with one interest rate. The monthly payment and interest should be lower than your current ones. However, if your agreement involves an extended repayment plan, this can cut into your savings over time, so be sure to consider the long-term costs of consolidating.
For some, the benefits of getting creditors off your back and having a simplified and steady monthly payment are enough to decide on a consolidation strategy. But unlike credit card loans, which are unsecured, most consolidation loans are secured with one of your assets, like your car, home, or any kind of insurance policy. Make sure you are comfortable with putting up this kind of collateral.
Weighing the pros and cons of and deciding on debt settlement vs debt consolidation is not an easy task and shouldn’t be taken lightly. But you don’t have to go it alone, be sure to go with a debt relief that offers a free debt evaluation so that you can make sure they are a right fit for you and your needs.