Debt consolidation and debt settlement are two distinct approaches to debt repayment. It is critical to understand how they differ before deciding on a solution. Debt consolidation is the process of combining various debts into a single loan with a single interest rate. It can make debt payments more manageable and improve credit scores by reducing the credit utilization ratio.
Consolidation Loans
Juggling multiple debt payments can be a challenge. Debt consolidation loans like those offered at Symple Lending can streamline your monthly payments into one, lower your interest rate and help you pay those pesky revolving balances off faster. A personal loan, a home equity loan, or a 401 (k) plan can all be used to combine your debt. A lender can assist you in determining whether this is the best option for you. All credit scores are accepted by banks, credit unions, and online lenders for debt consolidation loans. It’s important to evaluate your spending habits and devise a plan to control your finances before taking out a debt consolidation loan. Otherwise, you might be worse off in the long run.
Debt Settlement
Debt settlement involves working with a debt relief agency to negotiate with creditors to settle for less than what you owe. In most cases, you’ll pay the debt settlement company a fee calculated as a percentage of your enrolled debt. This can be a more expensive option than debt consolidation, but it may keep you from damaging your credit score as much in the long run. However, you’ll likely pay late fees and interest charges on the settled amount. Debt settlement can also negatively impact your credit because it often requires you only to spend all your creditors once a final debt payment is reached. This can lead to account charge-offs and may even result in a tax bill for the forgiven amount. Additionally, settlement agencies often charge high fees that could offset any potential savings you receive on your owed balances. Those fees can include 15% to 25% of your total enrolled debt.
Debt Management
To help borrowers lower their debt, there are two options: debt settlement and debt consolidation. But choosing amongst them is trickier. It depends on your financial objectives and capacity for timely debt repayment. Debt management aims to combine multiple credit balances into a single monthly payment. This can simplify your costs and save you money by reducing cumulative interest. You can approach debt management through debt consolidation loans or by working with a debt-relief organization or credit counselor to negotiate with creditors. For instance, experts at Symple Lending can help you raise your credit scores by lowering your credit usage ratio by settling debt balances. Debt settlement might have tax implications if the IRS considers your debt settled for less than you owe. And while debt settlement might work for some people, it’s only right for some. The most important thing is to weigh your options carefully and choose a strategy that will work best for you.
Bankruptcy
Bankruptcy wipes out debt by paying a small percentage of the original balance in one lump sum. For the borrower, it provides financial relief and a way to rebuild credit. It also gives creditors some money rather than nothing at all.
Unlike debt settlement, bankruptcy stops all creditors and collection agencies from attempting to collect or take other legal action until the court sorts out the debt. It can stop foreclosure on your house or car, prevent repossession of your property and halt the termination of utility services. It can also eliminate debts such as student loans, child support, alimony and most criminal fines. But the court may also erase some of your assets, hurting your credit score. It is best used as a last resort, and it’s important to consult with a credit counselor and a lawyer specializing in bankruptcy before pursuing it. You also should review all other options for resolving your debt.