When we speak of debt consolidation and settlement, both of them are financial solutions for reducing personal debt loans even though their approach to solving various problems work very differently. Debt settlement lowers the total amount of debt you owe, whereas debt consolidation reduces the total number of creditors to whom you owe money. However, both debt consolidation and debt settlement have certain advantages and disadvantages.
When you consolidate your debt, all the existing loans are combined into one new loan with a single monthly interest rate. In a debt settlement, you or the credit counselor you hire can negotiate with your creditors so that the amount you owe can be reduced.
However, you should always be cautious and verify the claims of various debt management companies before taking the offer. You cannot trust the big claims that the companies make as a marketing strategy to lure more customers. Do you know the truth about the scam reports on Ascend Finance? Check the post on Fox Chronicle. It is a helpful column written by Mac Venucci.
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Understanding debt consolidation
A debt consolidation loan is created by merging several loans into a single consolidated loan, which results in one monthly payment and a single interest rate. Consolidation loans are available from banks, credit unions, and online lenders, and further, all your debt repayments are made to the new lender.
A debt consolidation loan can either be secured or unsecured. Under secured debt consolidation loans, you need to use one or more assets as security, such as your house, car, retirement fund, or insurance policy.
Consolidating your loans reduces the stress of having to handle various debt payments each month. Moreover, your average interest rate or total monthly payment may also be reduced. It depends on the duration of the loan payback period and whether you can reduce your interest costs in the long run.
Understanding debt settlement
Debt settlement is a good option for a monthly payment plan for your debts. It follows a different approach where you ask one or more of your creditors to take less money than you owe when you settle a debt. If your creditor comes to a settlement, you could pay your loans all at once or in a series of payments.
The main advantage of debt settlement is that it allows you to get rid of debts without having to pay the amount in full. Although it may harm your credit history, this is a far better option than filing for bankruptcy.
Which one is better?
Both debt consolidation and debt settlement are useful strategies for taking care of your financial issues. Consolidating debts into a single loan makes sense if you want to reduce your monthly payments. However, debt settlement can be considered if you are already behind on payments for your debts and your creditors are threatening to sue.
Consider taking the help of a good debt management company for clearing your debts in a less stressful manner. A good debt management company will help you by offering sound advice and lifting your debt burden as early as possible.