Debt consolidation and debt settlement are two of the main methods that those in debt use to get out of financial trouble. Typically used separately, a real case can be made for using them in conjunction. First we will explore what each is, and then we will move on to how they can work together.
Debt consolidation involves an individual securing a loan for the sole purpose of paying off all of their debt. Once this is done, the person will only need to make the monthly payment for the debt consolidation loan. This option is used by both people that find themselves behind on payments to multiple creditors, or those that can get a better overall deal by securing a loan with an interest rate that is lower than the interest rate on their other account.
Debt settlement is the process of hiring a debt specialty company to negotiate with your creditors in order to reduce the overall amount of debt you owe. This usually requires that you set up a separate savings account that will be dedicated solely to making payments to your creditors once a settlement amount has been agreed upon. Hiring a debt specialty company does cost money. However, they are generally able to reduce your debt to an amount that makes it well worth using this service.
If you take out a debt consolidation loan, you have the choice of paying everything you owe, in full, immediately. However, if you choose to combine debt settlement and debt consolidation, those amounts could be much less. This likely sounds like an excellent idea on the surface, and for the most part, it is. There is one thing to consider though, and this is how your credit rating will be affected.
If you have been struggling to pay your bills, there is little doubt that your credit score already reflects this. If you use a debt consolidation loan to pay off all of your bills in full, your credit score will reflect this, and start to improve quickly. If you use debt settlement to pay off your bills, your credit report will show that your account was paid, but will show that you did not pay the full amount owed. There is a big difference here, and something that should be considered before combining debt consolidation and debt settlement.
It will be up to you to decide if this difference matters a great deal to you. If your score has not already suffered too badly, you may want to avoid this option. However, if you made it to the brink of bankruptcy, it might not make that big of a difference in the long run.
Combining debt consolidation loans and debt settlement services is just one option. Though not for everyone, the use of these two debt relief methods could be just the solution you have been looking for. Debt is an ugly creature, and should be tamed as soon as possible so that you can resume a happy life.