Should you opt for debt settlement or debt consolidation? How can you decide?

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If you are trying to pay your debts and wondering how to manage it along with your monthly expenses, then it is always an ideal option to opt for debt settlement or debt consolidation. Over the period of time, the loan you have taken from the market almost doubled the amount. Huge interest rates furthermore top this. Overall, it becomes impossible to meet the principal and interest amount. We all have a limited monthly income, and it becomes very difficult to last throughout the month after paying those huge interest amounts to the money lenders. Almost, the borrowers are left with nothing after making the payments. Average individuals take loans for meeting emergency purposes. But due to various reasons, sometimes we all fail to keep up with the loan repayment. Failing to repay the loan timely will certainly lead to penalty charges and other fees. Overall, it becomes more than the original amount we borrowed.

Why should you instantly settle down with your debts?

Settling down the debts is important to ensure a hassle-free life. You cannot focus on your life unless you make the debts and when all these useless charges are levied by the money lenders on the principal amount, it seems like the loan repayment action will never get complete. Sometimes when the borrowers fail to repay the loan, they are severely harassed by the collection agents. In that case, it becomes very difficult to live a normal life. So, if you are presently suffering under the huge burden of loans, then immediately take a step forward and clear off the issue without further exaggerating.

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Although debt consolidation and debt settlement sound to be similar, still you need to understand the differences before applying for any one of them.

Debt consolidation

In the case of debt consolidation, the consumer debts are simply rolled into a new one. The balance transfer credit card, home equity loan, debt consolidation loan and 401k loan can be used.

Why should you go for debt consolidation?

  • You can cut down the total number of loans you need to juggle with every month.
  • You can easily go for a lower rate of interest. It will enable you to save money and definitely allow you to pay off your debt amount sooner.
  • You can produce your original and unmanageable debt amount into a manageable one.

What do you need to understand about debt settlement?

Debt settlement is quite risky because you need to withhold the payments of your creditors and once the account you are holding becomes severely delinquent, you need to negotiate with your lender for a smaller amount to complete your outstanding. But it is essential to understand that withholding payments can actually crash or put down your credit scores severely and you can also be sued for the payment. In fact, there is no such guarantee that your lender will allow you to pay the reduced amount. He might not even waive off the excess price tags in the form of penalties, late fees, etc.

You can either hire a company who will settle on your behalf with the lender or directly go for the negotiation yourself. This field is already very rife with numerous shady players. While hiring a settlement firm, make sure that you go through their debt settlement reviews.

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Few things that you need to keep in mind when you contact a debt settlement company

First of all, they will provide you with a time frame for settlement of your debt like two years or 3 years. They will also charge you penalty amount if you fail to repay the amount you owe. Secondly, it is quite possible that your lenders do not agree to the settlement offers. But still, in that case, you have to provide the initial charges of the debt settlement company you hire for the services offered to you. Thirdly, you can expect the debt settlement company to charge 20 – 25 percent charge of the final settlement amount. Fourthly, is quite possible that you have to face some tax related issues from the debt settlement companies. Even the IRS mentioned that the amount that is forgiven need to be shown as your income in tax file.

Should you hire a debt settlement company?

Just like every coin has a head and a tail, similarly, you can expect good things to be accompanied by a little hassle. Here, if you hire a debt settlement company, you can definitely enjoy a concession on the original debt amount that you owe in the market. But I have also mentioned some points above that you need to consider before hiring one such company because you cannot avoid them at any cost. But it is advisable that you hire settlement companies so that they can settle the loan on your behalf. Being professional they can manage the situation, and in 99% of cases, you can expect a positive reply from the money lender.

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What options can you get with debt consolidation?

When it comes to debt consolidation, then you can expect to come across some common programs like:

  • Personal loans
  • Debt management plan
  • Home equity loan or credit line
  • Balance transfer on the credit card

Basically, when you consolidate the loans, you can expect to pay a lower amount than you pay now. There are lots of advantages when you opt for this specific loan repayment option. You can just simply make the process of repayment easier with consolidation option. You can save amount and also live a hassle-free life. One should understand that in the case of debt consolidation the amount is neither reduced nor forgiven. It is just that you have to now pay a lump sum amount to a debt consolidation company instead of paying several lenders every month, which makes payment process quite complex.

Conclusion

Both debt settlement and debt consolidation have its own set of benefits, which cannot be overlooked. Now, the fact is that you have to choose one on the basis of your loan condition, payment capability, and eligibility criteria. Of course, it is not so easy to settle down or consolidate your loans as it sounds to be. So, you should have a clear understanding of both the concepts and check out each of them to select the one that fits you the best.

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