0

Comments

If you are looking for professional debt services to help you with debt management, you’ve likely come across to major offerings: debt settlement and debt consolidation loans. The goal of both of these debt services is the same: to get you out of debt and help you stay out of debt. But the methods by which debt settlement and debt consolidation loans work is very different. Before deciding on one of these debt services, take time to learn how they compare to one another.

Debt Settlement

Debt settlement provides debt services in which creditor and debtor come to an agreement on a reduced balance. Debt settlement, in most cases, does not erase debt, rather, it’s a compromise between the lender and the borrower. Usually, when debts are delinquent, it is because the borrower genuinely cannot pay it off. Rather than forcing the debtor into bankruptcy, the creditor would rather see them work out a deal that is manageable for the debtor. That way the lender gets some money, rather than none at all.

When debt settlement is offered among a suite of debt services, it is usually a situation where a lawyer or representative interfaces with the creditor. These professionals can increase your odds of getting debt settled by drawing on their expertise and resources. Debt services that perform debt settlement negotiations often charge 20 percent of the amount by which the outstanding balance was reduced.

When engaging in a debt settlement plan, it is important to know that you can still be sued. Settlement also can damage your credit. To avoid these issues, try to seek a formal written agreement with your  creditor. Also note that if you write off debt, you may have to claim that as income on your taxes. This means that you will be liable to pay taxes on that amount, which can be very high. You may want to consult with an accountant or tax specialist.

Debt Consolidation Loans

Debt consolidation loans is a different kind of debt service. Debt consolidators do not typically work things out with your creditors. Rather, they pay off your creditors on your behalf or give you a loan to be used to pay them off. So, instead of owing your credit card company or the bank, you now owe the debt consolidator. These debt services are useful because they can help you escape high interest debt that is overdue. It also simplifies the process of repaying debt.

When you consolidate debt, the debt services provider compensates themselves by charging your interest on your loan and possibly an upfront fee. The money you can save with the lower interest rate and less penalties often pays for itself. However, some debt consolidators are unscrupulous and may seek to exploit your situation. When surveying companies  offering debt services, be sure to verify that they are accredited and reputable.

Debt settlement and debt consolidation loans are two very different debt services. However, both can help you get out of debt.