Two common ways to manage or eliminate debt are debt settlement and debt consolidation. Even though both have a similar goal they are two very different ways to control debt.
Function
Both debt settlement and debt consolidation are ways for people to restructure or pay down their debt. The ultimate goal of both is to become debt free.
Types
Debt settlement agencies help you reach an agreement with your creditors for lower monthly payments and interest rates.
Debt consolidation is a restructuring of your debt so that your monthly payments will be lower. Your debts are combined into one monthly payment.
Features
Debt settlement agencies negotiate with your creditors to settle your debt for less than what is owed or secure a lower interest rate.
Debt consolidation allows you to make one payment each month, often at a lower rate, until all the debt is paid off. Common debts that can be consolidated include home equity loans, second mortgages, refinances or personal loans.
Benefits
The debt settlement agency does the negotiating for you. You pay the agency one payment a month and they then pay your creditors.
With debt consolidation you are responsible for the monthly payment. Once your debt is consolidated the old accounts can be closed right away.
Other Aspects
Debt settlement agencies do not begin to negotiate with creditor's until you are months behind on payments, which can hurt your credit score.
Debt consolidation loans usually increase the total amount of time it will take to pay off your debt, causing you to pay more total interest.
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