Debt Consolidation vs. Debt Settlement

If you are struggling with a significant amount of debt that you are not able to repay, you have many options. While bankruptcy can provide some relief and clean your financial slate, it should always be a last resort. Prior to filing, you may also consider debt consolidation or debt settlement. Many people use these two terms interchangeably, thinking that they both refer to the same thing. However, they do not. Below, our Orlando debt settlement and relief attorney explains the differences between the two. 

Understanding Debt Consolidation 

 Consolidating your debt involves combining many debts into one consolidation loan. Your original debt is not reduced, but you may be able to find a loan option that has a lower interest rate than what you are currently paying. Additionally, you will only have one loan payment every month rather than trying to keep track of multiple payments. When you obtain a consolidation loan from a bank, credit union, or online lender, you then make payments to them instead of the original creditors and lenders. 

 While a debt consolidation loan can result in a lower interest rate, it may also result in a lower monthly payment. The amount of money you can save, if any at all, will depend on many factors including the length of the loan and if there are fees associated with it, such as application fees. 

 Understanding Debt Settlement  

Settling your debts is very different from consolidating them. In a debt settlement agreement, you and a creditor agree that you will pay a lower total amount than what is currently owed on the loan. After an agreement is reached, you will then either pay the lower amount in a lump sum or installment payments. 

The biggest advantage of reaching a debt settlement agreement is that you will not be responsible for paying the full amount of the loan. While this is often a better option than bankruptcy for many people, it can also negatively impact your credit score. Additionally, creditors are more willing to enter into an agreement when the balance is significantly past due or when there is a final judgement already against you. As such, if you are current on your payments, debt settlement may not be the right option for you. 

Which One is Right for You?  

No one can determine if debt consolidation or debt settlement is right for you. If you are only looking for a way to make your debts more manageable, debt consolidation may be right for you. On the other hand, if you are substantially behind on your payments and do not know how you will pay them, debt settlement may be a better option for you. 

 Call Our Debt Settlement and Relief Attorney in Tampa Today  

If you have a substantial amount of debt and need relief, there are legal options available. At Florida Law Advisers, P.A., our Tampa debt settlement and relief attorney can explain what these are and help you through the appropriate process so you obtain the best possible outcome. Call us today at 1 (800) 990-7763 or contact us online to schedule a consultation and to get the legal help you need. 

Source: 

uscourts.gov/court-programs/bankruptcy/bankruptcy-basics