Debt Settlement Or Debt Consolidation

Both debt settlement and debt consolidation can help you crawl your way out of a financial catastrophe. Many people do not understand what the differences are between the two options. It is important to note that both options have their advantages and their disadvantages and people should compare the options of debt settlement vs debt consolidation before determining which is right for their individual situation.

Benefits of Debt Settlement

If you settle your debt then a part of your owed debts become wiped away or forgiven by the lender. This options provides an instant relief from the load on your shoulder. Many creditors will look at your financial situation and determine a payment plan which will allow you to repay a portion of the debt and will then forgive you of the remaining portion. The advantage for the creditor is that they will at least receive a portion of the payment without losing out on everything. This process helps you to start rebuilding your credit from now on.

Disadvantages of Debt Settlement

The most immediate and largest impact due to a debt settlement will be how it affects your credit score. When your creditor reports a debt settlement to the three major credit bureaus, they tend to hit your score with a big dent. If debt settlement is the route you choose to take then you will need to plan on rebuilding your credit score over the next few years.

Benefits of Debt Consolidation

When comparing options between debt settlement vs debt consolidation, your main goal will be to get out of debt as quickly as possible with as few penalties as possible. Debt consolidation has less of an impact on your credit score than debt settlement because you will still be paying most of your debts. When you consolidate your debts you will compile all of the loans you have onto one bill. This process will allow you to negotiate a lower rate with the various companies and create a single payment plan in order to pay off the remaining debt you have.

Disadvantages of Debt Consolidation

Even though there is less of a downside to debt consolidation you will still need to build up your credit score following the process. Debt consolidation also takes plenty of time because you will have to come to an agreement with all parties involved in the payment plan.

There is not a perfect or right solution to getting out of debt. This debt settlement vs debt consolidation scheme is designed to help you to understand what your solutions are and determine which is right for you. If you determine that either of these procedures would help you to get out of debt then you should speak with a financial professional who can also help you look at a more detailed comparison of debt settlement vs debt consolidation.

Now that you have a better idea of debt consolidation vs debt settlement, which do you think is right for you? Get a free debt assessment to analyze your financial situation.