Debt Consolidation and Debt Settlement
Debt Consolidation – the act of combining one or more debt accounts into one (most beneficial if done at a lower interest rate).
A lot of companies may want you to believe that debt consolidation is quite complicated and make you believe that you need them to consolidate your debt. Well, not the case! You can seek out a company to help you or you can do it on your own through a balance transfer credit card, home equity loan, unsecured loan through your bank or credit union, or peer to peer lender.
And if you try to search for a “debt consolidation company”, chances are they are really a debt settlement or debt management company.
Debt consolidation is a great first step towards optimizing your debt payoff plan. Here’s when you should consider debt consolidation:
> You’re paying on one more debt accounts that have very high-interest rates (such as most credit cards).
> You’re paying on multiple debt accounts and you’re struggling to keep track of them all.
Debt Settlement – the act of you and your lender agreeing to settle a debt for lower than the amount currently due.
Taking care of debt requires you to either have money to settle the debt with, unless you can go into a bankruptcy/hardship program and save money for the mean time. Or, you can go to a debt settlement company that puts your monthly payments in escrow for you to settle later.
Both options require money that may not be available, depending upon your financial condition. If you are struggling, the latter option may deeply damage your credit score. If you don’t make enough money to comply with the monthly payments, debt settlement will not. You can reconsider bankruptcy. But of course, bankruptcy also affects your credit but gives those who cannot see any way to reasonably pay off their debt a chance to start fresh.
If you are worried about your credit score, then you will need to look for other possible options.
For example, build an emergency fund, create a budget, and view money as a tool that can work for you rather than the other way around, build a solid foundation to start from. Personal finance management isn’t taught in schools and the common belief is that earning more money is the only way to reach financial success.
People of all situations and incomes face debt. Those who reach success paying debt off flip their money script. They realize that it takes time and that there are no easy ways out. They realize that they have more control than they ever thought they did, they create a plan, and they change lifestyle to prevent the ongoing cycle of debt.
No matter the reason you got into debt, no matter your income, no matter your past, and no matter your present, you can create a life of debt freedom. The power is in your hands – you just need to grab it!