Impact Debt Settlement vs. Debt Consolidation

Debt settlement and debt consolidation are both excellent ways to reduce or eliminate your debt entirely.  Each one of these options can and will have different effects on your credit score as well as your future financial standing.  Before you choose one over the other it is important to know both the good and bad of each.

*Debt Settlement Pros

Impact Debt settlement is when the debtor and creditor agree on a reduced balance that will be regarded as payment in full.  This will help you find financial relief in your monthly budget, making the rest of your monthly payments much more manageable.  Also, you will find that from this point on you can start rebuilding your credit.

*Debt Settlement Cons

The downside is that this will affect your IMMEDIATE credit score for two years.   Debt settlement is very similar to foreclosure and the result will be a credit score of 500 or even lower.  You can work to improve your score over the following two years, but you will also have to work with sub-prime lenders.  There is also tax issues involved.  The IRS views debt settlement as a cash gift or income. Depending on your individual situation, you may have to pay additional taxes.

*Debt Consolidation Pros

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.  The negotiations with the lender are carried out by a third party, trying got get you the lowest rates with your lenders.  One monthly payment is made to the consolidation company and they take care of making payments on all your accounts.

The consolidation company will also take care of all paperwork, see that any fees are paid, and will close down unused accounts.  Your debt can usually be taken care of within five years.

*Debt Consolidation Cons

While debt consolidation will have smaller affect on your credit score, it will take you longer to get out of debt and get your credit score back up.  Generally lenders will put a hold on extending you more credit until they see how you are doing under the loan.

*The Right Option for You

As you can see, there is no perfect way for getting out of debt.  Debt settlement will get you quicker results, but with a larger hit to your credit score, though only for two years.  Debt consolidation makes things less complicated, but with a smaller hit to your credit score, but more lengthy.  Whatever your approach, it is important to take either first step to be debt free.

Learn about debt settlement, debt consolidation, debt relief, and more at Impact Debt Settlement