Debt Consolidation or Debt Settlement?

The term “debt consolidation” is probably quite familiar to you by now, given the fact that it has been prominently featured in the media during this period of economic uncertainty. Credit card and other unsecured debt have emerged as a major financial problem for millions of Americans who in large part have lost the ability to secure loans or tap into home equity in order to ease their debt burdens. Debt consolidation has emerged as one of the most popular debt solutions for those with large amounts of unsecured debt, as it can benefit borrowers in three primary ways:

• By simplifying the monthly bill payment process
• By reducing the overall interest rate on the consolidated accounts
• By reducing the monthly payment on the consolidated accounts

For consumers who have difficulty staying on top of all their due dates and payments, consolidation will transform the situation by requiring only a single monthly payment. Those paying high interest rates on some of their accounts can benefit from combining their debts at a lower interest rate, which is usually touted as the main benefit of consolidation programs. However, the lower monthly payments that follow directly from these lower interest rates should be the consumer’s main focus. All too often consolidation companies will lower the interest rates, but the consumer will benefit little if at all in terms of a lower payment after the company’s fees have been added in. Another issue to be wary of is that lower payments may be primarily due to a longer repayment term. If the term had not been extended then the payment may actually have stayed about the same.

Debt settlement, in truth, is also a debt consolidation program. The consumer will make a consolidated monthly payment to the debt settlement company. However the benefits of credit debt settlement greatly exceed those of simple consolidation alone. Through the process of negotiation, the balances are typically reduced by 40% to 60% rather than being repaid in full, and interest charges are completely eliminated rather than just being reduced. The combined effect of these two factors will allow consumers to become totally debt-free very quickly. There is some short-term credit damage to consider, however many consumers who need the substantial debt relief afforded by debt settlement already have less-than-perfect credit. Others will opt for debt settlement due to the fact that it has much less serious credit consequences than bankruptcy. 

If you have questions about the best debt relief help for your circumstances, then speak with one of the knowledgeable debt professionals at Right Start LLC. They have the experience to advise which of the debt solutions they offer is the most appropriate for your particular situation.