 |
Debt Settlement Vs. Debt Consolidation |
|
|
Submitted by Cheryl Adams
| RSS Feed
| Add Comment
| Bookmark Me!
Debt settlement and debt consolidation both offer ways of reducing your debt. Debt settlement eliminates part of your loans, while debt consolidation reduces interest rates. Even though debt consolidation has the least impact on your credit score, there are cases when debt settlement is a better option.
Lower Debt
The goal of both debt settlement and debt consolidation is to lower your debt. Debt settlement companies negotiate with your creditors to sometimes reduce the amount of your loans. You will be charged a fee, and the debt reduction will remain on your credit score for seven years.
Debt settlement can reduce your debt 10% to 50%. To get the most out of the program, pay off the rest of your debt as soon as possible. Also, close accounts that you don’t plan on using to raise your credit score.
Debt consolidation pays off your high interest debts with a low interest loan. Home equity loans provide the lowest rates, but personal loans can also be used. With rates lower on your debt, you can pay off the principal sooner by making the same monthly payments.
Credit Score Implication
Reducing your loans through debt settlement is a serious mark to creditors. You credit score will drop, making you ineligible for conventional loans. But you can apply for subprime credit after a year. After a couple of years of good credit habits, you can then apply for lower rate conventional loans.
Taking out a loan to consolidate your debt will have a slight impact on your credit. Since your debt isn’t actually increasing, you will only be hit for opening another account. By closing your paid off accounts, you can partially offset the penalty. In a short period though, you will be in good credit standing if you follow best practices with your credit.
Financial Choices
No one financial choice fits everyone’s needs. While debt consolidation has the least affect on your credit report, additional loans may be too expensive. In extreme cases, debt settlement can help to avoid bankruptcy. Before deciding on an option, look at what companies are offering in terms of rates and fees. And if you need additional advice, talk to a credit counselor who can take a look at your finances and offer suggestions.
|
|
|
|
|
LinkedIn Recommendation:
 George Ishee - We are now helping companies automate their sales pitch to generate more leads! - Teo is someone that you trust, know is diligent and hardworking. He is creating a web based network that will help people network online and grow their business. I have worked with Teo and recommend him to anyone as he always is someone you can count on. - August 17, 2008, George was with another company when working with Teo at Net-Teams, Inc. |
|
Featured [Debt Consolidation] Articles:
|
|
