Both debt settlement and debt consolidation can help you pay off your debt or get rid of it completely. But each will have different effects on your credit score and the kinds of loans you can get in the future. Learn about the pros and cons of each choice before making a decision.
The Benefits Of Debt Settlement
When you settle your debt, your creditor gets rid of part of it right away. You will have more money in your monthly budget right away. The rest of your debt payments are m...
Both debt settlement and debt consolidation can help you pay off your debt or get rid of it completely. But each will have different effects on your credit score and the kinds of loans you can get in the future. Learn about the pros and cons of each choice before making a decision.
The Benefits Of Debt Settlement
When you settle your debt, your creditor gets rid of part of it right away. You will have more money in your monthly budget right away. And your other debt payments are much easier to handle.
You will also find that you can start to rebuild your credit from this point on. You can focus on managing your credit better instead of worrying about late payments, a lot of debt, and other things.
What's wrong with debt settlement
Debt settlement does have a few bad sides. The most important one is how it will affect your credit score right away. People see debt settlement as similar to foreclosure; your credit score will be 500 or less. And while you can improve your score, you will have to work with "sub prime" lenders for the next two years.
You will also have to deal with how a write-off affects your taxes. The IRS sees settling a debt as the same as getting a cash gift or getting paid. Depending on where you live, you might have to pay more state taxes as well.
What's good about combining debts?
You can also get out of debt by combining your debts. With consolidation, a company talks to your creditors about getting lower rates. You send one payment a month to the debt consolidation company, and they pay all your bills.
They also take care of any paperwork problems, account closing fees, and cancellation fees. Most of the time, you can pay off short-term debt in less than five years.
The Bad Side of Consolidating Debt
Your credit score will be hurt less by consolidating your debt. Most lenders will put off giving you more credit until they see that you are making payments on time. You still need to keep an eye on your accounts to make sure that the company helping you consolidate your debt is making payments on time.
How to Choose the Right One
There's no one right way to get out of debt. Debt settlement can improve your finances right away, but it will hurt your credit score. Debt consolidation makes things easier and doesn't hurt your credit score too much, but it does take time.
