Debt Settlement vs Debt Consolidation

What is Debt Settlement?

There are companies called settlement companies who will help you negotiate with your creditors to help you pay off your debt and reduce our outstanding balances possibly by up to 60%. If creditors or collection agencies keep harassing you, they can help by being the middle man.

Debt settlement is a good way to avoid legal actions such as wage garnishment or judgments that creditors may take when you have trouble making the payments.

Figure out how much unsecured debt you have. Then start by requesting a copy of your credit report from one of the main credit reporting agencies. Or you can access it online by using an online credit monitoring company like Experian or MyFICO.

Find out if you qualify for debt settlement. Normally, companies offering debt settlement only work with people owing $7,500 or more. There might be other requirements as well. Read all of the information provided by the debt settlement company. Make sure you will meet all the requirements before deciding.

Do you have the money for debt settlement? Subtract your monthly income from your normal living expenses, which include transportation, housing, utilities, insurance, and food. If you have any money left over, then debt settlement might be right for you. If you don't have any money left, you don’t want to try debt settlement.

Research the best debt settlement company. Don't sign on the dotted line with the first company you stumble across. Instead, read what services the company provides, and what they are expecting from you. Search for companies that have been in business for a long time. Please make certain they have been approved by the Better Business Bureau.

With debt settlement, you can lower the amount you owe and improve the relationship between your creditors and yourself. You can pay your debt a lot faster as long as you remain faithful and stick to the settlement offer that you agree to. Debt settlement can also incur potential tax problems, and may hurt your credit rating.

Determining If Debt Consolidation Is Your Best Option

Figure out how much unsecured debt you have. Get a copy of your credit report from one of the main credit reporting agencies. Alternatively, access it online by using an online credit monitoring company like Experian or MyFICO.

Do you think you might qualify for a debt consolidation loan? Try contacting a few debt consolidation agencies. Read over their qualification requirements. In many cases, you need to own a home in order to qualify for a debt consolidation loan. Debt consolidation is a home equity loan and will make your mortgage payment higher. Other qualifications may include a minimum FICO score, your monthly income, and steady employment.

Figure out how much you will save with a debt consolidation loan rather than paying your credit cards' minimum monthly payments. Ask the debt consolidation loan company to provide you with a quote, then check the figure.

Decide if you will be able to afford a larger mortgage payment. Debt consolidation can lower payments and interest rates for unsecured debt. Plus, you only have to make one payment, and you can write off the interest. However, with debt consolidation, it will take you longer to pay your bills.

Comparing Debt Settlement vs Debt Consolidation

Compare the short-term benefits of each debt solution option and then compare the long-term benefits of each. Decide which option is best fit for your needs. Which program will you qualify for? Which one offers the best benefits? Which one will you be able to afford?

Debt Settlement vs Debt Consolidation