Debt consolidation combines various debts into a single monthly payment, sometimes at a lower interest rate than the original obligations. Debt settlement involves a company working on your behalf to negotiate with creditors to lower the overall amount you owe.
While moving balances around can help, it doesn’t disappear your debt. Many people turn to debt settlement or consolidation to eliminate their outstanding debt.
Timeframe
While debt consolidation can take months, settling credit card debt can last years. That’s because a debt settlement company needs time to negotiate with your creditors and may need to set aside money in an escrow account until enough is collected to pay your debts.
Debt consolidation from Symple Lending can reduce your bills by rolling multiple debts into a single loan with one interest rate and payment. It can also help you save on interest charges and make it easier to juggle your bills.
However, if you make your monthly loan payments and bring your new debt under control, your credit score will be good. Plus, if you choose to consolidate your debt using a personal loan or home equity line of credit, it’s essential that you can afford the new monthly payment. If not, you may have better options, such as a balance transfer credit card with 0% APR for a limited period.
Consolidation
Debt consolidation allows you to combine all your debts into a single payment with a lower interest rate. This makes it easier to manage your monthly payments, can reduce the number of credit card accounts you have, and can save money in the long run.
Personal loans are usually used for debt consolidation, but you can also use balance transfer credit cards or a home equity loan. Some lenders offer low-rent unsecured personal loans, while others require collateral. Secured loans often have a fixed rate, meaning your monthly payments and total loan cost won’t change over time.
However, remember that debt consolidation won’t make your credit card debt disappear. If you continue charging more to your credit cards, you may end up paying for a debt consolidation loan over a longer term, and that’s not a good thing for your credit score. The best way to pay off credit card debt is with discipline and a plan that addresses your spending habits. A knowledgeable associate at Symple Lending can help you with your debt consolidation concerns.
Settlement
In theory, debt settlement sounds excellent—a life preserver tossed your way when you’re drowning in debt. But it’s important to remember that debt settlement has drawbacks.
Debt settlement refers to negotiating with your creditors to settle for less than what you owe. A third-party debt settlement company can negotiate on your behalf, but that option comes at a cost. Many debt settlement providers charge high fees you pay out of your pocket, which can add up quickly. And while it’s true that debt settlement can help reduce your overall balance and halt creditor calls, it can also damage your credit score, which may hamper your future loan eligibility and work opportunities.
If you choose to go with debt settlement, be prepared to stop paying your bills and deposit funds into an escrow account until the creditor agrees to settle. This will cause your credit to take a hit, and interest will continue to accrue while you’re not making payments.
Fees
Debt consolidation can reduce debt payments and save you money on interest by rolling multiple balances into a single loan. However, it doesn’t address the root cause of your debt. For example, if you’re in a debt repayment cycle that seesaws between overspending and racking up new balances, relying on a personal loan or credit card balance transfer to lower your monthly payment may result in more debt than you started.
A debt management plan involves working with a credit counselor to develop a budget and learn financial management. These plans help you establish a savings habit, which could lead to a debt-free future.
