Do you want to get out of debt but are unable to choose whether consolidation or settlement can solve your debt problems? Before choosing between consolidation and settlement, it is quite necessary that you have a clear idea about the two ways to get rid of your outstanding debts; then only, you’ll be able to choose the best suitable option for you. You should also take into consideration the effect on your credit score when choosing the most suitable option to improve your financial condition.
Debt consolidation is an option in which you make a single monthly payment to pay back your multiple debts. There are 3 ways to consolidate and repay your debts; you can take out a loan, go for balance transfer method or opt for professional help if you think that complete professional guidance is what need. In the first option, you take out a loan of the amount with which you can repay your outstanding debts in full and thus you actually replace your multiple bill payments into a single one. Balance transfer method can be helpful for you if you have lots of credit cards to pay off. In this consolidation option, you transfer your high interest debts into one with a zero interest or a comparatively low interest credit card. You can also opt for professional help wherein you just have to make a single payment every month to the consolidation company and every other thing is taken care of by the company.
Debt settlement helps you get rid of your debts when the outstanding payoff amount is quite high. You can either get professional help or negotiate with your creditors on your own to get rid of your unsecured debts. When you’re successful in convincing your creditors that the only other option left for you is to file a bankruptcy, they usually agree to reduce your debts to some extent so that you can repay the amount and solve your debt problems.
However, while comparing between consolidation and settlement, you should know that debt settlement can reduce your credit score to some extent. This is because you actually don’t pay back the debts in full. Apart from that, you also have to pay taxes on the amount forgiven as it’s considered to be your income by the IRS. Whereas, debt consolidation can help you raise your score to a certain extent as you repay your debts in full. However, debt settlement can make you get rid of your debts really fast.
In short, it can be concluded by saying that consolidation is the best suitable option for you when you have multiple debts and you cannot manage them properly but your financial strength permits you to pay them back in full. However, you can go for debt settlement when you cannot repay your debts in full. So, analyze your financial condition carefully and choose the option which you think can be the best to overcome your debt problems and help you manage your finances better.