Debt Consolidation Versus Debt Settlementwhich Is A Better Debt Relief Option
Okay this is a big debate and is not easy to be answered
. The reason for this is that both debt consolidation and debt settlement are a good option if you are thinking about debt relief.That is true it is your choice which can actually make the difference. In addition to this it is your repayment ability that can make wither of these selections successful for you. It is very hard to say which one is better but here is a comparative study of the two processes.
In favor of the two
To start with debt consolidation is a method by which you can accumulate all your monthly payments into one single monthly payment. This takes a huge burden off your shoulders of paying separate creditors at different time intervals as the credit repair company takes charge of that. The negotiation will be done on the lines of a reduced interest rate by your credit counselor. This makes a huge difference as you know that this will help you manage your funds in a convenient way. There is a high possibility of getting some especially late payments eliminated completely. This is why it does not hurt your credit score at once and on the contrary you can see it improving in no time at all.
On the other hand debt settlement is about getting things with immediate effect. This means negotiating with your creditors on the total amount of the money you owe them. In reality there is a possibility of reducing your debts by 30% to 70% of your debts. The time taken for this usually varies in between a years time to 3 on an average. You certainly will be able to manage your monthly payments with this reduction.
Against the motion
Let us start with consolidation of loans which do not have an impact on the outstanding balance. Then lenders will put a stop on your credit until they are confirmed about your payment. Another thing that you need to do is keep a tab on the fact that the debt relief company you have signed with is actually making the payments.
About settlement of your loans this can be said that you will liable to pay taxes on the amount you have saved. This is a rule implied by the IRS which means you have to pay it. The other disadvantage of a settlement is that the credit score gets hurt badly. It takes a time of around 2 years to heal your score, but yes it is manageable.