Having spent a little more than you can afford with your credit cards? Don’t worry, it can happen to the best of us. Being in debt can be a very difficult time, and if you have a particularly large debt, the end is probably nowhere in your sights. Fortunately there are debt relief programs that offer their help to you.
You can opt for either debt consolidation or debt settlement. Both have their pros and cons. Today you will learn them, so you can make an informed decision on which to go after.
Debt Consolidation
A debt consolidation program will let you take out a loan at a lower rate of interest, so you can use it to pay off your creditors. This loan will also allow you a longer repayment plan, decreasing your monthly bills.
The benefits of this are the lowered interest rate and the longer repayment plan. The lower interest rates will make your debt grow less fast. The longer repayment plans means you have to spend less money every month on your debt. This will make it easier for you to pay them in full and on time, if that was a problem for you before.
If you have several debts, consolidating your debts will combine them into a single, big one. This way, there is only one creditor to pay each month, which is a lot more convenient.
Though I stated earlier it was a benefit, the longer repayment plan also counts as a disadvantage. Because you are taking longer to pay off your debt, you will pay more on the interest.
Debt Settlement
Unlike debt consolidation, a debt settlement program will actually reduce your debt. You end up paying your debt off at once at a fraction of the total sum. Understandably, this is very alluring to many people.
Debt settlement works by keeping money from your creditors, until they’re willing to settle for less. After a few months of not getting money, your creditors will fear you are going bankrupt, and will be willing to negotiate a settlement payment. This means you pay off your debt for a fraction of the amount owed.
The downside is that this leaves a significant blemish on your credit score. All your unpaid monthly installments and the fact that you settled your debt will be registered. This will make any lender think twice before ever getting into business with you.
Debt settlement also comes with a risk of court action. The credit company may sue you for not paying your bills.
So what is the best debt relief program? Only you can decide that for yourself. Personally, I think debt settlement comes with too many risks, so I would sooner go for debt consolidation. However, I would only do this if I wasn’t able to make my monthly payments. Otherwise I would only see it as a waste of money. But in the end it’s up to you. Are you willing to take the risk with debt settlement and save some money, or would you rather play it safe with debt consolidation and pay a little more?