Which do you have more – Creditors or Debt? To know the difference between debt consolidation and debt settlement, you must identify which of the two, creditors vs. debt, you have more of. Both can help you reduce the amount you owe but differ in process and action plan.
Debt consolidation means that all your debts will be rolled into one account, and you pay for one loan. The money you owe banks, credit unions, and other lenders can be consolidated into one new lender, and you don’t need to pay multiple lenders at a given time. If done right, you may save a few hundred dollars on lower interest rates than you currently pay. You can apply for a secured consolidation loan using your retirement account, insurance policies, car, or home as collateral.
Debt settlement is better than filing for bankruptcy. Debt settlement is asking your creditor to write off your debt. But it is accepting repayment that is less than the original amount you owe them. If your creditor allows you to apply for debt settlement, expect to pay the settlement amount in one go or the agreed installment plan. Be aware, though, that your creditors can choose to accept your debt settlement offer, and they can choose not to as well. To make your chances of being approved better, offer a one-time settlement payment in cash to sweeten the deal.
Another vital difference between debt consolidation and debt settlement is its impact on your credit score. Debt consolidation may help your credit score improve if it can significantly reduce your credit utilization ratio. On the other hand, debt settlement can hurt your credit ranking. This is because your history will show that you applied for debt settlement.
When it comes to the difference between debt consolidation and debt settlement, it depends on your current situation and your financial goals. One may be better, and we can help you navigate these two options.
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