Both debt consolidation and debt settlement are to help you become debt-free. But there are essential differences between the two options that you should understand before deciding.
Debt consolidation entails consolidating all of your debts into a single loan with a lower interest rate. This can save you money on interest and help you pay off your debt faster. However, it only works if you qualify for a consolidation loan and make your payments on time.
Debt settlement, on the other hand, is the process of negotiating with creditors to minimize the amount of debt you owe. If you’re having trouble making your payments and are on the verge of defaulting on your loans, this may be a viable choice. However, debt settlement can harm your credit score, and you may still be required to pay taxes on the forgiven debt.
Pros and Cons of Debt Consolidation
Let’s take a closer look at the pros and cons of debt consolidation:
-One monthly payment
-Lower interest rate (if you qualify)
-Can help you pay off debt faster
-You must qualify for a consolidation loan
-May extend the length of your repayment period
-There is a risk of defaulting on the loan if you miss payments or fall behind
Pros and Cons of Debt Settlement
And now, let’s take a look at the pros and cons of debt settlement:
-Can help you avoid defaulting on your loans
-You may only have to pay a portion of your debt
-Can help you get out of debt faster
-May damage your credit score
-You may still have to pay taxes on the forgiven debt
-May take longer to settle your debts
-There is a risk that the settlement company will not be able to negotiate with all of your creditors
The best way to decide whether debt consolidation or debt settlement is right for you is to speak with a financial advisor like Carl Cyrius of The Oasis Firm. They can help you understand your options and make the best decision for your unique situation.