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If you’re struggling to keep track of your debt and pay it off on time, you’re one of those in the same boat. This is a common struggle that many people who are just starting their debt financing journey face and are unsure of what to do. As financing certain aspects of life becomes expensive, debt accumulation has skyrocketed. So what to do in such a situation? If you opt for debt consolidation with Amone Where debt settlement with credit associates? These terms may have been on your mind for some time now, leaving you confused as to which way to go.
However, being aware of technical terms like these is not everyone’s cup of tea and can often leave someone confused. So if you are wondering what is the difference between debt consolidation and debt settlement is, then you have come to the right place. Here is a breakdown of what the two elements involve and which would be best suited to your financial situation. Read ahead to find out more and make the right decision.
Debt Consolidation vs Debt Settlement – The Difference
Simply put, debt consolidation aims to reduce the number of creditors you currently have. It is a form of refinancing in which one loan is used to pay off others. Several high interest debts in this way can be merged with a lower interest rate. Thus, strengthen your financial situation and organize yourself to pay off your debts once and for all. However, it is important to realize that debt consolidation does not eliminate your initial debt.
Debt settlement, on the other hand, aims to reduce your overall debt. It amortizes the amount you owe creditors. To do this, you must negotiate debt relief with your creditors. It also depends on your credit score, the higher your credit score, the better your chances of receiving debt settlement at a lower price.
What’s more debt settlement is often the last resort after all avenues for debt repayment have been explored and no viable options are available. This option is also taken into consideration after looking at debt consolidation. If you are unable to qualify for debt consolidation, a bank transfer, or not wanting to declare bankruptcy, this option can be advised by your expert or financial advisor.
Their impacts on credit scores
However, it is important to note that both debt consolidation and debt settlements can lower your credit score. This can be worrisome in the long run, especially if you want to take out a large loan in the future. A lower credit score reflects low financial responsibility and lowers the credibility of your loan. So, whether you are going for debt consolidation or debt settlement, it is important to use certain measures to increase your credit score. Here are some of the ways you can do it.
- Make payments on time in the future – you can even set up an automatic payment option for amounts owed. This way you won’t miss any payments
- Keep an eye on your financial health. Maintain and track your spending and avoid unnecessary spending. You can do this by budgeting for each month until your debt situation has improved.
- Check your credit card reports frequently. Immediately report any errors or discrepancies to all of your credit bureaus. This will prevent problems in the future.
- Try to avoid making big purchases for a while. This could be the purchase of a car or a luxury item on credit, for example. It is better to opt instead for a personal loan with installments.
Does it cost anything?
Debt consolidation may require loan origination fees. For debt settlement, if you go to a third party for help, you may also need to pay a fee here. This can be between 15% and 25% of the total amount of your listed debt. On the other hand, it may not cost anything at all if you decide to do debt settlement on your own. So it is important to keep this in mind before opting for any of these options.
If, however, you are looking for an alternative to debt consolidation, you can opt for a debt management plan instead. This can be obtained from a consumer credit counseling service. They can help you develop a plan in which you can pay off your debt in a sustainable way. These service providers can also work with your creditors to lower your interest rates and fees.
For debt settlement, you can also work with a credit counseling agency. It is better to take a hit on your credit score and turn it up later, instead of becoming past due on your debts. A consumer credit counseling agency will help you manage your bills and pay off your debts without suffering long-term repercussions.
The bottom line
Debt consolidation and debt settlement are two different approaches to refinancing your debt. Their execution depends on various factors, your credit score is the most important. So, if your credit score is higher, you may be able to get your hands on both options for a good price. So contact your financial advisor or your bank representatives for an in-depth discussion of what would work best for you in the long run.