Debt settlement and debt consolidation are not the same thing. While
they both help reduce your debt, they each affect your credit score and
pocketbook differently. Before signing up with any debt management
company, make sure you understand the pros and cons of their approach. And
of course, be a smart shopper before signing any contract.
Debt Settlement Instantly Eliminate Debt At A Cost
A debt settlement company gets your creditors to wipe out part of your
debt immediately. Fearful that you may go into bankruptcy and that they
wont see any money, creditors will reduce your debt. With smaller
payments, you can more easily wipe out your principal.
But with debt settlement, your credit will be in poor shape for a
couple of years. Debt settlement is treated like a foreclosure or bankruptcy
by lenders. So it will be difficult to get decent credit, at least for
two years. You will also have a tax liability with the eliminated
amount.
Debt Consolidation A Slow Approach To Debt Relief
Debt consolidation companies handle your creditors and payments. You
send them one payment, from which they pay your accounts. They also
negotiate lower rates with your creditors, helping you to get out of debt
sooner.
Try using one of ABC Loan Guide's
Recommended Debt Consolidation Companies.
With this approach, your creditors will temporarily freeze access to
new credit. They will want to see in the next year that you are making
regular payments and reducing your debt. Your credit score may also drop,
depending if your lenders report that you are working with a debt
consolidation company. But after a year, you will be able to apply for new
credit, possibly with prime rates.
Research Before You Sign
Before you sign up any debt management company, make sure you research
several companies before settling on one. Ask about their fees and
process. Comparison shopping will give you a good idea on how reasonable
the fees are. Details about the process will tell if the company is
experienced in this type of debt management.
The sooner you reduce your debt, the faster you will improve your
credit score and your finances. Debt management companies can help you get
started.
View our recommended
Debt Consolidators online. Also, view our recommended online lenders for Mortgage Refinancing to consolidate debt.
