Hard Work And Proper Planning Will Make Debt Consolidation A Successful Attempt
Most people consider taking out a new loan to pay off their existing ones by combining them into one. This is a process called debt consolidation which has its unique features and set of advantages.
- The loan is usually offered by traditional banks and financial institutions and other lines of credit
- The amount of the loan is usually larger than the amount of all your existing loans that you want to combine
- The rate of this loan is usually lower than the average rate of interest of all your existing loans
- The term or the time period you get to repay this loan is usually long
- You can choose to take out a secured or an unsecured debt consolidation loan according to your affordability and eligibility
- You will now have only one monthly bill to pay and that too in reduced amount as compared to all the amounts combined of your multiple loans
- You will be comfortable and find it convenient to repay having to keep track of one monthly bill and creditor thereby avoiding and miss outs and defaults and
- It will not harm your credit report in the way a debt settlement would.
Sounds great? Well, it is but as long as you have a proper plan in place and follow it. It needs discipline and hard work from your part. If you think what the reward for your hard work is, well, it is that you will soon become debt-free!
Therefore, make sure that you take control of your money as well as your debt right from the very first day you take it out with a stepbystep plan. Get started today to ensure a safe and secure financial future by following this fastest way to get out of debt.
It may be so that at times you may even think about settling your debts with your creditors for a lower amount, also knowing about debt settlement process. However, if you go through the debt consolidation and debt settlement ratings you will find that the option for combining their multiple debts existing by taking out a debt consolidation loan is by far more favored by the borrowers as compared to settling their debts with their creditors.
This is due to the significant difference between debt consolidation and debt settlement in terms of their working process, effects, features and consequences though in most of the cases thesetwo terms are used interchangeably. It is also possible that you will find a specific company doing both debt settlement and debt consolidation further creating a greater confusion among the borrowers in understanding these terms properly.
As far as debt consolidation is concerned there is perhaps nothing else to add to what has been explained in the first paragraph of this article. One thing more that can be said about debt consolidation is that it is a loan that restructures your debts but not reduces the total outstanding amount that you have to repay.
Debt settlement on the other hand is entirely different from a debt consolidation loan. Debt settlement means that:
- You hire a certain company that will negotiate with your creditors on your behalf if the creditors are willing to that is
- They will try to reduce your outstanding amount of your loan by reducing a portion of the interest and waiver of certain fees but certainly not reduce the rate of interest and
- They will arrange for an agreement wherein, if the creditor agrees, you can pay the reduced amount in parts or in a lump sum at one time as full and final settlement of the debts.
However, everything depends on the willingness of the creditors as to whether they will negotiate with you, agree to your offer and reduce any amount. Therefore, in other words, nothing is in the hands of the debt settlement company. This means, when they say they will make your debt free in six months and reduce your outstanding loan amount by half, be wary of such companies and even better avoid them.
Some other differentiating features of debt settlement that you need to know include:
- The debt settlement companies will also charge you a fee for their service which in most of the times will cost you anywhere from $1,500 to $3,500. However, this figure may vary according to the piecing policy of the company.
- A few may charge you as a percentage of the amount that you save in settling your debt and few may charge a percentage on the total amount outstanding and there may also be a few that may charge at a flat arte depending on the numbers of loan accounts taken up by them for settlement with your creditor or creditors.
- If you are unlucky and fall prey to a fraudulent debt settlement company then you will be asked to stop making payments to your creditors on your debts. They will ask you to make the payments to them instead and once they have their fees accounted for they will promise to negotiate with your creditors when a sufficient amount is build up and settle your debts.
All these may sound great to you but be informed that in most of the cases the debt settlement companies are more interested in their business rather than deliver you what they promise or helpyou with your debt once they take your money. They may leave you on the hook and in turn you will encourage the creditors to add up late fees and additional interest payments on your debt making your situation worse.
Debt settlement can be a scam and those debt relief companies that charge you before providing any service or actually settling or reducing your debt surely are. They are in violation of the Federal Trade Commission rules of debt settlement and should be avoided at all costs.
Therefore, debt consolidation is the safest way to repay your debt in the times of financial hardship. All it takes is a bit of hard work to make it a success.