Debt Settlement Versus Debt Consolidation

Everyone would like to eliminate their Credit Card Debt and gain financial independence.

Did you know that an average American household has over ten credit cards with an average balance of $11,000?

Quite overwhelming facts, are not they?

Nowadays, both consumer debt settlement and debt consolidation loan are popular financial options for those people who have high amounts of credit card debts.

However, between these two options, which one is better? Which can help the cardholders to get rid of their debts faster?

In my personal point of view, your financial situation is the key factor that determines your decision.

First thing first, let’s take a closer look at your existing credit cards.

Review the interest rates and find out your total outstanding balances.

Ask yourself honestly whether you have some cash on hand to pay back your lenders.

If yes, you may consider negotiating with your creditors to request for debt reduction.

Tell your lenders that you have “limited” fund, but you are really sincere in paying off your debts.

Just remember that settling debt with lesser fund helps you to eliminate your debt faster, but this option will definitely affect your credit score.

In order to convince your creditors to accept your settlement proposal successfully, you must not make any payment to your lenders until and unless they agree with your settlement offer.

Remember though that the missed payments will damage your credit rating badly. Hence, you are reminded to think about the effect before making your final decision.

On the other hand, if you don’t have any funds and you don’t want your credit score to be affected badly, you should consider consolidating your multiple debts into one single loan.

When you are doing so, you need to make sure that the interest rate of the new loan must be much lower than your current interest rates.

In order to enjoy good deal, you are advised to apply for a secured loan by putting up collateral.

If you don’t have any fixed asset, then you have no choice but to take up an unsecured loan with higher interest.

You are reminded to pay off all your current debts after obtaining the loan.

Then you should focus on the monthly repayment until you pay back your new loan in full.

Consolidating your debts will have negative effect on your credit score too, but the impact is not as bad.

To sum up, it is not easy to say which financial option is better.

It depends very much on the debtors’ financial position and their financial needs.

Before you finalize your option, you are reminded to evaluate your financial ability first and you definitely should stop using your credit cards and creating new debt.

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