When you’re managing debt it may not seem like there are many options available to you. Digging yourself out of debt may be difficult, but it’s not impossible. In fact, you may have more options available than you’d think.
There are a variety of ways for you to pay off your debt. When many people consider their options, most come down to either debt consolidation or debt settlement.
Both options are great ways to deal with debt, but they have their own unique benefits. Consider this post your quick guide on debt consolidation vs debt settlement.
What Is Debt Consolidation?
If you have multiple loans or credit cards you’re dealing with, debt consolidation may be the best way to manage your debt. In simple terms, legitimate debt consolidation allows you to turn multiple payments into one payment.
There are two popular ways to go about this. Some people choose to get a low-interest credit card and use it to pay off smaller amounts of debt. Since everything is on one credit card, they just have to deal with one payment instead of several.
Other people choose to get a loan to consolidate their debt. Using a loan to consolidate debt may be the easiest way to deal with large balances that can’t easily be paid off with one credit card.
What Is Debt Settlement?
When you choose to go down the debt settlement route, you negotiate with creditors to pay a lower amount than what you owe. Choosing this option also means that creditors can stop pursuing you to pay your debt and can protect you from getting sued.
Many people choose to go down the debt settlement route when they’re very behind on payments, have multiple delinquent accounts, and know that they don’t have a way to pay off everything they owe.
Debt settlement can be risky because there’s no guarantee that you’ll get your desired outcome. The settlement process can also take a while, and on average can last anywhere from 2 to 4 years. Your credit score will also take a big hit, penalties, interest, and other fees can still accrue.
Debt Consolidation or Debt Settlement: What’s Right For Me?
Both of these methods can give you the desired outcome of eliminating your debt, but they work in very different ways. The right method for you is going to depend on what you owe, your current financial situation, and what you want your financial future to look like.
If you have manageable debt that you want to get a handle on, debt consolidation might be your best option. Paying everything off and making timely payments on your consolidating loan or credit card can help you gradually eliminate debt and can help improve your credit score.
People that don’t think consolidation is an option should consider settlement. If you already have a lot of late payments and delinquent accounts, the harm a settlement can do to your credit score may not be worse than what’s already occurred.
Financial Advice For Savvy Spenders
Debt consolidation or debt settlement are great ways to get your debt under control, but there are other things you can be doing to improve your financial future.
Do you need advice on how to improve your credit score to secure a mortgage? Are you interested in learning the best way to pay off your debt?
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