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DEBT CONSOLIDATION VS. DEBT SETTLEMENT

If you are in debt, chances are you have looked into both debt settlement and debt consolidation as a solution for debt relief. Although they sound similar, these are two very different programs.

GUARDIAN DEBT RELIEF HAS OUTLINED THE DIFFERENCES BETWEEN THESE TWO PROGRAMS BELOW

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Guardian Debt Relief BBB Business Review

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DEBT SETTLEMENT

Debt Settlement can be a powerful tool to pay back your debts and loans quickly, and for less than what you would pay for the life of the loan.

A debt settlement company will negotiate with your creditors and lenders to reduce your principle debt while you make monthly payments into an escrow account–an account serviced by a third party that you have complete control over.

By choosing Guardian Debt Relief, your creditors may accept repayment at just a fraction of what you owe, which means you pay back less when your debts are settled. We can combine all of your qualifying debts into one monthly payment.

Enrolling into a debt settlement program such as one provided by Guardian Debt Relief shows that you are actively involved in improving your future financial situation.

While your credit score might lower when you enter a debt settlement program such as Guardian’s, keep in mind that if you can’t afford to pay your credit card debts and consistently pay late or miss payments, your credit score is already negatively impacted. After you have finished the debt settlement plan, your settled debts will be indicated on your credit report.

PRO

✔   Guardian Debt Relief does not charge upfront payments

✔   Pay back less than you owe on your balance

✔   Repayment is based on a monthly schedule created on your own terms

✔   Repayment takes an average of 24 months, compared to the many years or decades it would take to repay a debt through minimum payments

✔   Trusted companies will have debt settlement experts to guide you through the debt settlement process and rebuilding your financial future

CON

✖   At first, debt settlement may have a negative effect on your credit score

✖   You may have to pay taxes on the amount of money you saved on the debts that were settled


 

DEBT CONSOLIDATION

A debt consolidation loan allows you to pay off all of your debts immediately, in exchange for a lower interest loan either provided by a bank, credit union, or other lending company.

However, you must compare the total cost of taking out a debt consolidation loan. A consolidation loan provider’s interest rate may be lower than your current debt, but it is dependent on the repayment term.

Your monthly payments on the debt consolidation loan will likely be lower if you agree to a longer repayment term, such as a 5-year loan versus a 2-year loan, but you’ll end up paying more in interest for the lifetime of the loan.

The total cost of a debt consolidation loan will likely end up being more costly than the debt that you used the consolidation loan to get rid.

Debt consolidation lending rates and terms are based on your credit score. If you don’t have good credit you may end up with a longer payment plan with a higher interest rate, or you might not qualify at all.

On top of this, if you have missed payments on your current debt for quite some time, or you have high credit utilization and are looking for a debt consolidation loan, your credit score is likely too low to qualify.

PRO

✔ Replace your high-interest debts and loans with a more manageable lower-interest loan

✔  Debt consolidation loans can be provided by reputable banks, credit unions, and lending companies.

CON

✖   It may be difficult or impossible to qualify if you have a low credit score

✖   A debt consolidation loan will cost your more than the principle balance on your loan

✖   A lower monthly rate requires a longer repayment plan

✖   A long-term debt consolidation loan requires long-term financial stability and on-time monthly payments for the duration of the loan

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