SETTLE OR CONSOLIDATE??
WHEN TO SETTLE THOSE
DEBTS
Debt
settlement eliminates
part of your loans, while debt consolidation reduces interest
rates.
Even though
debt consolidation has the least impact on your credit score, there
are cases when debt settlement is a better option.
DEBT
SETTLEMENT WILL LOWER YOUR OVERALL DEBT
The goal of
debt settlement is to lower your debt.
A debt
settlement company can negotiate with your creditors to reduce the
amount of your loans. You will be charged a fee, and the debt
reduction will remain on your credit score for seven
years.
COMPARE AND SAVE
Debt
settlement can reduce your debt 10% to 50%.
To get the
most out of the program, pay off the rest of your debt as soon as
possible. Also, close accounts that you don’t plan on using to
raise your credit score.
Debt
consolidation pays off your high interest debts with a low interest
loan. Home equity loans provide the lowest rates, but personal
loans can also be used. With rates lower on your debt, you can pay
off the principal sooner by making the same monthly
payments.
Credit Score
Implication
Reducing your
loans through debt settlement is a serious mark to creditors. You
credit score will drop, making you ineligible for conventional
loans. But you can apply for subprime credit after a year. After a
couple of years of good credit habits, you can then apply for lower
rate conventional loans.
Taking out a
loan to consolidate your debt will have a slight impact on your
credit. Since your debt isn’t actually increasing, you will only be
hit for opening another account. By closing your paid off accounts,
you can partially offset the penalty. In a short period though, you
will be in good credit standing if you follow best practices with
your credit.
Financial Choices
No one
financial choice fits everyone’s needs. While debt consolidation
has the least affect on your credit report, additional loans may be
too expensive. In extreme cases, debt settlement can help to avoid
bankruptcy. Before deciding on an option, look at what companies
are offering in terms of rates and fees. And if you need additional
advice, talk to a credit counselor who can take a look at your
finances and offer suggestions.
REMEMBER –
SHOP WISELY – DO YOUR RESEARCH AND COMPARE
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