Debt Consolidation or Debt Settlement, Which Should I Choose?
You have a financial problem, and you need to solve it quickly by using either debt consolidation or debt settlement. However, you have no idea what these two financial services do, or what their advantages and disadvantages are. You are confused and need some guidance before taking the next step.
This is where we come in. We will present and discuss these two financial services, what service works best and what can negatively affect your finances the most. Make sure to you speak with a financial counsellor before making any decision. Making a wrong move in a situation like this could spell bankruptcy.
It is a financial service that can transform all your debts (including their interest rates, charges, etc.) into a single one. The advantage is that you will have to worry about one single debt every month. The monthly payment, interest rate, and other fees can be lower. That is why many people rely on this financial service.
The Types of Loans You Can Consolidate
Most people that apply for debt consolidation use it to consolidate personal loans. These loans are popular among many people, and you can use multiple personal loans or combine them with another type of credit to lower the rate and fees.
You can also use debt consolidation on your credit cards, store cards, charge cards or even other credit accounts.
What Are the Advantages of Debt Consolidation?
The primary thing that many people find this service attractive is that you can lower the repayments and the costs. You can reduce the monthly payments, interest rates, and other fees by up to fifty percent.
You can use this option to avoid getting those annoying phone calls from debt collectors and even avoid bankruptcy. Not only that, but debt consolidation has some extra features that you can access. You can access fixed interest rates and lock in repayment amounts.
The Disadvantages of Debt Consolidation
If you play your cards right and you are careful with this financial service, you won’t have to deal with these problems. However, if you don’t, you may end up increasing your debt. Not only that but you could lose your property if you use your mortgage with debt consolidation and fail to make timely payments.
Debt settlement is a financial service that serves as an agreement between you and your creditor/creditors. If you have a low income, you cannot pay your loans every month and want to avoid going bankrupt, then this service might be the thing you are looking for.
A debt settlement works like this: an administrator will assist you with preparing a debt settlement proposal based on how much you can afford to pay. The proposal will be sent to your creditors, and they will vote to reject or to accept it. If the majority approves the settlement, then you will pay less.
Types of Loans That Can Be Used With Debt Settlement
You can use unsecured loans with debt settlement. However, unlike debt consolidation, you cannot settle a secured debt, joint debts, overseas debts or debts that continue after a debt agreement has finished.
Here’s an example: for secured debts, once you cannot repay the debt, the lender can take the asset and auction/sell it. That way he will get his money back.
The Advantages of Debt Settlement
The advantage is that if your proposal gets accepted, you will pay a less amount every month for a longer term. In other words, you will regain some financial control. And you won’t have to worry about losing your assets.
The Disadvantages of Debt Settlement
The first thing that will happen is that your credit file will contain a debt settlement listing for five years, even if your proposal is denied. You will also have to inform your new creditors about your debt settlement.
If you have a new company with a new name, you will have to advise anyone who deals with your business about your debt settlement.
We would go with debt consolidation instead of a debt settlement. In any case, it is wise to ask a financial counsellor first.
If you want to learn more about debt consolidation or debt settlement or want assistance with other financial services, we recommend contacting us for free advise so you have a better understanding of everything before you make a move.