Many debt relief companies provide both credit consolidation programs and debt settlement services. Both can be effective and beneficial ways to reduce your debt and to establish good spending and saving habits for your future financial health, but what is the difference between these two programs, and how do you know which one is right for you? Read below to learn more about your options.
Also referred to as debt management or consumer credit counseling, credit consolidation is a way to receive financial education so that you can better track and manage your personal finances. In addition to providing credit counseling services, many debt relief agencies can assist you with debt management plans, which involve negotiating repayment plans and securing lower interest rates and lower minimum payments to your creditors. After credit consolidation, debts are not settled for a lesser amount than what you owe.
Debt settlement, on the other hand, is a savings program that usually involves negotiations with your lender to get a reduced balance. The goal is to have the accounts being reported as settled for less than the originally agreed upon balance. During the process, your budget and financial circumstances will be examined, for the purpose of creating a savings program that you can afford. Each month, you will deposit money from your personal checking account into your debt settlement account. At the onset of this process, you stop paying your lenders in order to have more leverage in negotiations. Unlike with credit counseling, this course of action can affect your credit, but the end result for many customers is that they get out of debt under a structured plan once they have enough money to pay off the debt as well as the debt relief agent’s fee. Often, people find that they ultimately saved money under the settlement plan. Debt settlement plans and credit and are sometimes recommended for those individuals who are unable to afford their credit card bills. As with credit consolidation, people have the option to negotiate their debts themselves, but many people have found an advantage is working with a BBB accredited debt settlement company in this effort.
Tags: debt settlement, credit consolidation
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