Difference Between Debt Consolidation and Debt Settlement
Struggling with debt is one of the most mentally exhausting feeling that a person experiences, needless to say that it is an extremely bad feeling to have. Unfortunately financial crisis is one such feeling that does not go until and unless you clear off all your debts. There are several ways to come out of the debt trap and one of the most common programs is the debt consolidation non profit loan. However, there are several ambiguities revolving around debt consolidation loan, one of the strongest being the inability for people to understand the difference between debt consolidation loan and debt settlement.
In case you also did not realise the difference, let us elaborate the differences that they have.
Debt Consolidation Loan
If thinking of a smooth, slow and mild option that does not lead to any drastic results, then look no further other than debt consolidation loan. The primary reason for its popularity is the lower rate of interest that this loan type charges. Since the interest rate is lower, it makes paying off the debt easier. Consolidating all the small loans together into one big loan is what debt consolidation focuses on. There are several well reputed financial institutions who offer this loan to people, along with several peer to peer lender groups. Researching about the financial institutions is important to figure out how reliable they are and whether you can trust them or not. It is also important that you speak to your lender and set the terms and conditions of the interest rate that will be charged on the debt amount. It is also important that you communicate with your new lender about the policies that will be executed to clear off debts through debt consolidation. A lot has already been spoken about debt consolidation and why it is considered to be the easiest way out. However, what needs your immediate attention is the fact that debt consolidation loan must be availed from a bank of well repute and on whom you can trust. Reliability plays a crucial role so that you don’t run the risk of getting involved in some fraud activity. It is best not sign up for any unrealistic debt repayment plan in the temptation that you will be able to repay your loan at a faster rate. Considering you are facing a financial crisis, make sure to opt for plans those can be executed by you within the time span that has been decided.
Debt settlement is considered to be a lot more drastic as an option and people who seem to be in a hurry to repay their debt avail this loan type. Debt settlement is more like coming to a settlement with your lenders and telling them to settle the debt amount at a price lower than the actual amount and to forgo the rest of the money. This sort of settlement is only possible when both parties are willing to forego the rest of the amount and just be happy with a major chunk of the money. Availing this definitely helps you to get the loan out of your head but it badly affects your credit score. Since the credit score is at stake, most people do not prefer to avail this loan and like to consider the other options left at hand. But the financial turmoil that people go through is different and that is the major reason many people opt for it. It is best to judge the situation you are in, and if the financial advisor even suggests the same, then it is a good idea to avail this loan type. There are several debt settlement company and you need to take their help and assistance. It is important that you cross check the background of the company to save yourself from running into the risk of any fraud activities.
This background verification of the company helps in gaining your trust and reliability of the company. Agreeing to avail debt settlement implies that you will have to sign a contract and come to an agreement of paying a lump sum amount of money to your lender. Since this loan type affects your credit score, it is best to read carefully the terms and conditions that is mentioned in the contract that you sign post the decision of availing debt settlement. The toughest bit of availing this loan is when your lenders and creditors keep calling you constantly while you are in the process to accumulate the pre decided amount. Well, this is a pain that is worth taking considering you don’t need to pay the entire debt amount. Guess, one cannot get the best of everything in life and when in a rush to pay a lesser amount of money, this problem is worth taking up, isn’t it?
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