Debt settlement and debt consolidation both offer ways of reducing your debt. Debt settlement eliminates your debt, while debt consolidation reduces interest rates. While debt consolidation might work for some, there are cases when debt settlement is a better option.
Lower Debt
The goal of both debt settlement and debt consolidation is to lower your debt. Debt settlement companies negotiate with your creditors to reduce the amount of your loans. Debt settlement can reduce your debt 10% to 50%. To get the most out of the program, pay off the rest of your debt as soon as possible. Also, close accounts that you don’t plan on using to raise your credit score.
Debt consolidation pays off your high interest debts with a low interest loan. Home equity loans provide the lowest rates, but personal loans can also be used. With rates lower on your debt, you can pay off the principal sooner by making the same monthly payments.
Credit Score Implications
Both debt settlement and debt consolidation will have a slight impact on your credit score. Since your debt isn’t actually increasing, you will only be hit for opening another account. By closing your paid off accounts, you can partially offset the penalty. In a short period though, you will be in good credit standing if you remain fiscally responsible.
Financial Choices
No one financial choice fits everyone’s needs. While debt consolidation might work for some, debt settlement might work better for others. In extreme cases, debt settlement can help to avoid bankruptcy. And if you need additional advice, talk to a credit counselor who can take a look at your finances and offer suggestions.
