Debt consolidation loan and debt settlement loan – Which is the right choice for you?

We have always been against taking a loan because you believe that you will spend only the amount that you can afford but now due to some reasons you had to take a huge loan which is now finding difficult to repay.

There are two options available to you when you cannot pay back the amount, which you have taken from the lenders – debt consolidation and debt settlement.

Both these terms sound almost similar, and individuals really found it difficult to understand which one will be the perfect choice for them.

Debt consolidation can be said as a collection of numerous consumer debts, which are rolled together to form a single loan amount. Here, you can use a personal loan, balance transfer, credit card, 401(k) loan and home equity loan.

Why should you go with debt consolidation option?

Well, this option can help you to cut down the several loans that you are juggling with along with the huge amount of interests you are paying every month. Thus, it will enable you to save a lot of money every month, which you can pay to clear off your debt quickly.

These days a number of people face upside down owing to various reasons and so using the home as your loan security may not work for you. But there is no need to worry about this situation as several lenders will show interest in your business, despite the fact that you do not have a perfect credit score.  It is not at all difficult to come across an authentic debt consolidation loan company. All you need is to do a little bit of research.

Debt settlement – Is it right for you?

 This is quite risky as you need to withhold payments from a creditor. Once the account is delinquent, you have to negotiate for smaller payments in order to satisfy the debt. But all individuals are not aware of the fact that withholding payments can actually reduce their credit scores as well as open them for being sued for the payment. In fact, there is no guarantee that the creditor with even agrees to settle down.

You can actually try to settle down debts on your own but it always an ideal choice to hire a company. You need to be quite aware because there are shady players in this field who have recently made it highly difficult for individuals to believe blindfolded.

Why can you choose debt settlement option for paying your lenders?

You can try this option only if you have an account, which is already in collections or long delinquent and you think that your creditability is readily accepted as a part of the total pending amount. You will have hardly anything to lose because your credit score is already lost.

Debt settlement also known as debt mediation is quite risky as compared to debt consideration. Even experts who have thorough knowledge on this topic do not agree it to be legitimate. Around 65 to 150 points are reduced from the credit score when an individual use this method of repayment. Even a single late payment can lead to a negative mark on the borrower’s credit score for minimum 7 years. Debt settlement is performed by an agency or company; while individuals perform debt mediation. Both the terms are same, and the advantages you can gain are also similar.

If you are planning to go for debt settlement, then it is essential that you look for debt settlement ratings. It is vital to check the ratings because that will help you to understand the company’s services and background. At the same time, it will also help you to select an eminent company that can offer you fruitful services according to your financial needs.

Debt management programs

This program is known for being the most reliable and safest route that individuals can go for. Here, certified counselors will help you in preparing money spending plans, which are realistic and can actually help you to pay back your debt amount quickly. They will prepare a budget plan on your behalf, which will actually help you in handling your finance in a much better way. In some cases, when bill repayment becomes completely difficult, then the credit counseling firms provide debt management programs by joining hands with your creditors. If you prefer to take part in one such program, then you will get a setup in the agencies computer system, and proposals will be forwarded to your creditors. The creditors will review the proposals forwarded by the companies and accept the concessions if they find them to be a good deal. You need to give complete details to them so that they can prepare your monthly financial budget accordingly.

With the debt management programs, you will able to reduce your multiple payments easily. You will simply have to make a single payment every month to the credit counseling agency that you choose to work with. This, in turn, will disburse the payments to the credited according to the decided amount. Now, you do not have to worry about missed or late payments because you are paying the creditors’ every month a specific sum amount as per the settlement. In such programs, over-the-limit fees and late fees are eliminated altogether. This will also help you to reduce the high rate of interests as well as help you to repay your debts more quickly than you can even imagine.

The bottom line

If you are presently in a bad financial condition owing to the high interest rates that you need to pay on unsecured loans, which you have taken some time back, then the very first step that you should take is to go ahead for a credit counseling session where you should discuss your financial issues with the experts as well as the market debts you have. Debt management programs are offered by numerous non- profit credit counseling organizations. Make sure that the credit counseling company you choose to settle down with provides you proper services according to their promises. Also, ensure that the agency is a part of a well-known and accredited organization.