Debt Consolidation vs. Debt Settlement Agreement

Debt Consolidation vs. a Debt Settlement Agreement: Which is Best for You?

With all of the information out there today, it can be difficult to decide which debt relief option is best for you. Whether you have multiple maxed out credit cards, huge car payments, or large amounts of unexpected medical debt, there are options available to help you gain control of your finances. Knowing all of your options and what will be best for your situation is key to coming up with a realistic and actionable plan to becoming debt free.

There are many different aspects you need to know when considering debt consolidation or a debt settlement agreement. Both are tools that can be used to experience debt relief and ultimately regain control of your finances.

What is a Debt Settlement Agreement?

This solution is an agreement that is made between you and your lender that allows you to pay back a partial amount of your full outstanding debt and settle your account. Depending on the amount of debt that you have, the process can take a few month or even years. Additionally, not all lenders are as willing to negotiate an agreement, so this option is not always available.

Debt settlement agreements can also have a potentially negative impact on your credit score. If you are not making consistent payments during negotiations with your lender, or if you are not working with a debt relief organization to save money and offer your lender a large payment all at once, then your credit score will definitely be impacted. These are all factors that need to be considered when deciding if this is the right option for you.

What is Debt Consolidation?

Debt consolidation is the merging of all of your outstanding unsecured debt, into one single payment. Unsecured debt is money owed with nothing being held as collateral. With this approach, you are also able to get a lower interest rate, which means you will pay less in interest over the lifetime of the loan.

With this option, your debt should become easier for you to manage, though it is not immediately paid off. If, however, you can consistently make all of your payments, this option can also help to improve your credit score.

Differences between a Debt Settlement Agreement and a Debt Consolidation Loan

The main difference between these two debt relief options is that the former allows you to negotiate and only be responsible for paying a portion of what you owe instead of paying the full amount. With the latter, the amount of debt that you owe is not reduced through negotiations but instead is simply transferred into one place so that it is easier to manage.

A debt settlement agreement can also impact your credit score for 5 to 7 years depending on the total amount due, while debt consolidation should not impact your credit score unless you fall behind and begin to miss payments. If you can consistently make your payment every month, this will actually help to improve your credit score over time.

It is necessary to do your research when developing a comprehensive debt relief strategy. This will help you in coming up with a plan and a budget that actually meets your needs and does not cost you more in the long run. It is also important to only work with trusted professionals and organizations so that you can actually come up with a plan that is benefit for you. Contact us at Liberty Debt Relief to see how we can advice you towards more financial freedom.