Many types of debt relief products and services are out there these days. Two services people can often mix up with each other include debt consolidation and debt settlement. Both these services can help someone looking for a debt solution, but for many people, debt settlement services can represent the best first step to take. Here is a look at the difference between these two debt services.
What Is Debt Consolidation? How Does it Work?
Typically, debt consolidation involves taking out a loan to pay off all your combined debt. Many people like this option, especially if they find a loan with a lower interest rate or low minimum monthly payment.
The main drawback to debt consolidation is that you will still have the same debt. If you struggled to pay your debts in general, then consolidating them doesn't eliminate anything. Instead, you're just taking out a loan.
If you're not careful with how you use the loan to pay the debt, you can find yourself just adding more debt to the pile. This type of debt relief can also tempt someone to take a loan out from somewhere they shouldn't.
Suddenly, taking out a home equity loan doesn't seem so bad, but it's not something you should do to pay off debts. If you miss payments on that loan, you can find yourself dealing with foreclosure. Nevertheless, taking out a personal loan from a bank can work.
What Is Debt Settlement? How Does it Work?
Debt settlement involves contacting creditors and attempting to have them change the payment terms, lower the amount owed, settle on a lower lump-sum payment, or even eliminate the debt in some rare cases.
Creditors want their money and are often willing to work something out if it allows them to collect something on a debt. This type of debt relief tends to work best with debts that sit delinquent for a few months or more.
You can contact creditors yourself and request a lower amount or settle with them, but that isn't a good practice. Unless you have a head for finance and know how to negotiate with debt collectors the right way, you can make the situation worse. For this reason, debt settlement services exist. A debt settlement service can negotiate on your behalf and seek favorable terms for you.
When choosing a debt settlement service, make sure to choose one with a good track record. As with anything related to finances, you must always show care and practice due diligence. Debt settlement can really help you in your path towards debt relief, but you must contact the right service for the job.