Home > Guide > Money and Finance
Facts about Debt Settlement and Debt Consolidation
An average of 80% of Americans have withstanding debts, states www.msn.com. There have been times when it becomes extremely difficult for a consumer to handle all his debts. During these times, it is obvious that he tends to opt for a debt management program. However, there is a lot of confusion that arises between debt settlement and debt consolidation. Consumers find it difficult to understand, which program they should opt for. If you are also in a similar situation, it is suggested that you get to know about the various facts that are associated with both debt consolidation and debt settlement and then come to a proper conclusion, as to which one is the best for you.
5 Facts about debt consolidation
If you are having a lot of withstanding debts, it is obvious that the minimum payment at the end of every month is not going to help you fix the debt amounts. Some things definitely need to change and you can consider debt consolidation, as it allows you to make a single payment at the end of every month and the interest rates are also comparatively low. Before you decide anything, it is crucial that you get a proper idea about the various facts that are associated with a debt consolidation loan.
When you are consolidating, there is no guarantee that the rates of interest will be low
The rates of interest associated with the debt consolidation loans are normally set by the descriptions of the creditor or the lender and it is completely dependent on the previous payment behavior of a consumer as well as his credit score. Even if you are qualifying for loans that have low rates of interest, there is obviously not going to be a guarantee about the interest rate being low. However, it is important that you stay honest as the interest rate is not going to be your main issue. The main issue is undoubtedly the spending habit that you have.
Lowering the interest rates on the debt consolidation loans can undergo changes
This is applicable when the debt amounts are consolidated with the help of the balance transfers of credit cards. The low rate of interest is normally the introductory promotion, which is applicable only for a certain time period. The rate can also increase with time.
Consolidating the bills mean that you are going to remain in debt for a longer time period
For every case, a consumer is going to have low payments and the reason behind this is that the time period of the loan is normally prolonged. It is extremely important to understand that an extended term also means that the payments will be extended. Your primary objective should be getting out of your debts as fast as possible.
Debt consolidation does not mean the elimination of debts
Consumers need to understand that they are only restructuring the debt, and they are not eliminating the debt at all. You do not need to rearrange the debt; you only need to reform it.
The behavior that you have with money fails to change
It has been observed, that a number of times after a consumer has consolidated the entire debt amount, the debt starts growing back. This is because most of the consumers do not have a proper plan for saving money and they tend to spend a lot. If a consumer is not establishing proper money habits in order to stay away from debt, it is obvious that a debt consolidation loan cannot help him in any way.
4 Facts about debt settlement
Debt settlement is known to work in an amazing manner when the excess burden after credit card debts start overwhelming you. However, there are certain facts about debt settlement that you should know before you take any particular decision.
The credit card companies do not like the debt settlement programs
Most of the companies do not prefer the debt settlement program and the reason behind this is that they lose a huge amount of money. There is no obligation that your credit card organization has to offer or negotiate a debt settlement for a lesser amount in comparison to what you actually owe. It completely depends on you as to how you are convincing them and you also need to offer the payment, which is going to satisfy the business needs that they have. You need to be ready for a frustrating process of continuous negotiations.
A debt settlement program normally means a huge amount of payment
A debt settlement means that you are paying your creditors a part of the amount that you owed on basis of all the terms that you are negotiating with them. This amount is lump sum as it should satisfy the withstanding debt and is also responsible for closing the account that the creditors have with you. A creditor normally accepts a debt settlement program because it is better to receive a lump sum partial payment in comparison to receiving no money at all.
Consumers need to have money before they are negotiating
An important bargaining tool is paying a lesser amount of money in comparison to what the consumer owes, by offering a huge amount of money for settling the debt obligation. This means that if you are going for a debt settlement program, it is important that you have your money ready before you start your negotiation. If you offer more money than what you have, it is going to put you in trouble as you will not be able to meet the agreement. You can go through the debt settlement feedback left by consumers on different reputed websites.
The debt will not get reduced
Despite all the promises that a debt settlement organization normally makes, you can never expect to pay half of the entire debt amount. There can be a reduction of 15% to 30% of the outstanding balance. In a few instances, it might be possible to convince the credit card companies to take a slightly lesser amount than that, and it is also going to need proper skills of negotiation from your side.
It is always suggested that you take proper pieces of advice from your tax lawyer in order to know, which debt management program is right for you.