If you are indebted and are already struggling to pay your loans, then you will be seeking various financial help and solutions to come out of the situation. And in that case, you must have heard of the two common debt management solutions, which are debt settlement, and debt consolidation. Confusions often occur about which is what, and how they can help, and which is better and such things. Hence, the detailed you know about both, the better you will be able to decide about which solution to pursue.
When you reach a settlement with creditors through negotiation, so that you have to pay them a lesser amount as per your affordability or limits than the original amount you owe, then that is called debt settlement. This can be applied in case one creditor whom you owe huge or may be used for multiple creditors to all of whom you owe something.
Debt consolidation means consolidating or adding up all the loan amounts that you owe, to get a figure which you would then apply for as a consolidated loan from a new creditor, in order to use that big amount for repaying back all the current loans. This process collects all your debts under one single banner which is the new consolidated loan.
How to draw a comparison
The comparison often comes between the two terms and processes, and many people indebted to multiple sources and struggling with them often try to find out which one to go for. Some of the things are decided based on the time you have in hand to wait for a solution, and the way your credit record will be impacted by it.
Does Debt settlement work?
Many discussions are happening everywhere around the world regarding the positivity and possibilities of debt settlement, and the debt settlement reviews are often given by customer who opted this tells many aspects of the approach.
When you have time enough to fight this battle and try your luck, and when you have a really poor credit score which will not help you get more loans like a debt consolidation loan, then debt settlement is one option for you.
You would generally need a mediator, who would be an experienced debt settlement expert, and a pro in the field to plan and act on your case. The professional would talk on your behalf to the creditor and will tell your situation and offer. Generally, a lesser amount and sometimes a very little amount is offered to the creditor to waive off charges and allegations of non-payment from you and settle down the debt. And this needs quite a lot of convincing discussion and negotiations. That is why you need expert and professional guidance from people who have been doing this for many customers and for much time.
Hence it can be said that this works certainly depending on the expertise and approach of the debt settlement expert. But there are however a few challenges with debt settlement.
Challenges with debt settlement
The main challenge in debt settlement is about making the creditor accepts the offer. And if you have more than one creditor, then the same process needs to be repeated with all. Another big challenge is that, while your middleman talks to the creditor about the loan, you have to wait more, and if the discussion goes long and for days, then your waiting will generate a few more due dates for the debt installments. And non-payment of them will further affect your credit score and history. And this can be a dicey thing when you have to decide if you want to go for this or not. Thus, as per debt settlement feedback received from various parties, it can be a gamble to go for this, and you may benefit from this or succumb to losses.
Some points to consider while approaching a debt settlement company
- The debt settlement companies always advise their customers to stop paying any charges, dues, late payment penalties, etc. to the lender unless the case is sorted. These fees and penalties all pile up to get added to the final settlement amount, and paid altogether after final negotiation, till the things keep on accumulating, and this is a problem.
- It may take up to 3 years to get a debt settled even with the most experienced companies. That’s why most people look for debt settlement rating before choosing a settlement company so that this waiting time is lowered. Yet you have to wait and see the debts pile up.
- While you wait for the decision, your credit score keeps on getting affected and lowered, and the credit history openly reflects these.
- The debt settlement companies would take charge of you which will be a percentage of the amount they settle for you. And hence you will be actually paying them for the settlement.
- Not all the creditors will accept your offers made through the settlement company. Some may accept, and some may refuse, and you will have to go with it.
With all these factors, the idea of going for debt settlement can be a dicey game. It may or may not click, and not all dues may clear off with this method. While you stand a chance to clear off all dues, you have no guaranty. Moreover, to clear off dues even with the settled amount, you need to have funds enough. And if you don’t have funds, then you will not be benefitting even after the settlement.
Finally- get help from debt consolidation
In this scenario, debt consolidation often helps. It’s a smart alternative debt management solution. And you can get a debt consolidation loan with some effort. This will let you pay small amounts or EMIs every month without putting any pressure on your budget. Also, your credit score that once got affected will improve with the proper payback of this loan. Also, you will not have to pay extra fees and charges for applying for the loan, while on approval of the loan, all your previous dues will be settled fully.