Debt Relief Solutions

by: admin Monday, May 10th, 2010

Which Debt Relief Solution Makes Sense for You?  Debt Settlement vs. Debt Consolidation

Debt settlement offers the ability to eliminate your unsecured debt.  Consolidation loans will consolidate debt, which will lower the interest and monthly payments, but with debt consolidation no debt is forgiven.  However, both debt solutions will have various consequences on your credit score and future financial options. Before choosing either debt relief solution, get educated and consider the benefits and risks before choosing.

The Benefits Of a Debt Settlement Solution

Debt settlement is a relatively new debt relief program.  A debt relief company will work on your behalf to negotiate a reduced pay-off to your credit card companies. You don’t get instant relief with debt settlement, but after 12-24 months you will likely be out of debt.  This is a great alternative to people that do not want file a bankruptcy and do not have the ability to qualify for a debt consolidation loan.  The biggest benefit with debt negotiation is that you will pay less than you owe on your debt.

The Risks Of Debt Settlement

There are a few risks and concerns with debt settlement. The most significant one is the immediate effect on your credit score. Debt settlement is viewed by creditors like a charge-off.  In most cases your credit scores will drop in 500 range, at least while you are in the debt settlement program. And while you can improve  your score, for the next two years you will have to work with bad credit lenders. You could also have to deal with the tax implication of a write off. The IRS sees debt settlement like receiving a cash gift or income.  Depending on where you live, you may also have to pay additional state taxes.

The Benefits Of Debt Consolidation

Debt consolidation can also provide payment relief. With a debt consolidation loan, you are extended a set amount of money that is used to refinance credit card debt.  Another benefit is that instead of paying 6 different credit card bills, you only have one monthly payment to goes the lender.  In most cases, a debt consolidation loan will not have a negative impact on your credit score. In fact in some cases a second mortgage can help you raise your credit scores.

Some Concerns Of Debt Consolidation
The main concern consumers have with debt consolidation is the fact that they will be paying back the entire balance of debt, whereas with debt settlement you only pay back the negotiated amount.

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