What is Debt Consolidation?- Read to Understand!
There are many debt relief methods out there. One of the most effective methods is debt settlement and consolidation. Both of these debt relief options work in different ways, depending on how they work with your unique financial situation. Knowing the difference between the two will help you make an informed decision about which method to use.
Debt consolidation is a type of debt refinancing which involves taking out one large loan to cover many others. This usually refers to an individual finance method of people dealing with high credit debt, however sometimes it can also refer tot his/her personal financial plan to address Government debt or corporate debt. In the debt consolidation option, the debt consolidation company pays off all the debts of the client. The creditor may receive a lump sum payment from the debt consolidation company for the total amount of debt that was paid. This payment is usually lower than what you would receive from a debt settlement company, though it depends mostly on the original outstanding debt balance.
Debt settlement according to Louisiana credit management specialist is the more popular method among debt relief methods. This means you would work directly with the creditors to settle them for a reduced amount. A debt settlement company would make a deal with your creditors on your behalf. Your debt consolidation company would take care of the negotiations, after which it would disburse the settled amount to your creditors monthly. Your interest rates would also be reduced.
With debt settlement, you do not have to worry about making regular payments to your creditors. As long as you can afford to make the payments, you settle for a lower payment that you can easily afford. You do not even have to worry about any court proceedings as long as you follow through with the agreement made by your debt settlement company. Once a creditor agrees to settle your account, he/she has to abide by the terms set by the settlement.
One downside to debt settlement is that you may have to face the risk of filing for bankruptcy. If you are not able to settle your debts, you will have no choice but to file for bankruptcy. With bankruptcy, you would not only ruin your credit rating, you would also leave an impact on your creditors. So it is better to opt for debt consolidation loans. Even if you do not opt for bankruptcy, you can get a debt consolidation loan in case you plan to file for bankruptcy later on. If you opt for debt consolidation loans, you can settle your debts faster than with a debt settlement.
Before you get into a debt consolidation loan, it is important that you choose the right settlement or debt relief company. It is recommended that you check the Better Business Bureau before signing a contract with a settlement firm. There are several firms who charge a lot for their services and do not even help you settle your debts. If you want to use a debt relief company to settle your debts, it is important that you first compare the rates offered by different companies. Make sure that you choose a debt consolidation loan program that suits your needs best and pays off your creditors at the soonest time possible.