If you have researched various methods to help you get your finances in order, then you have probably come across credit consolidation and debt settlement as options. Credit consolidation and debt negotiation have some things in common. However, you will find that there are also some very big differences.
Debt negotiation involves you working with a company who specializes in that specific area. They will contact all of your creditors and will attempt to negotiate a settlement amount. They will offer only a percentage of the debt and ask the rest to be forgiven. It will be reported on your credit report as a settled debt and is a big negative. Credit card companies will typically settle for between 25% to 50% of the amount that you originally owed. The final amount depends on how far behind you are on your payments and how long you have had the debt. The older the debt, the cheaper you will be able to settle it for. So you will want to keep this in mind. When working with a debt negotiation company, you will pay them money every month. They will save your money, without making payments, until you have built up a substantial amount. This means that you could be paying the debt negotiation for months and your creditors won’t see a dime. If you find yourself working with an unethical company, they could easily take your money and split and wouldn’t know the difference until months later and only after you have given away quite a bit of money. Often times, debt negotiation companies won’t even speak to your creditors until you’ve built up a certain amount of money, because the credit card companies typically wants the entire settlement amount at one-time. This means that your creditors may have to wait months or even years before they receive a payment from you. During this time, they can bring a suit against you and will report you to the credit reporting agencies. Consequently, this is a very risky way of dealing with your debt.
A credit consolidation is a much easier way to go about dealing with your debt. In this situation, you will work with a company that will contact your creditors upfront and ask them to drop your interest rates or waive any late fees. After they agree to do so, you pay the credit consolidation company and the company pays your creditors. Therefore, your creditors are being paid the entire time and you should see your debt decreasing. You want to make sure that you work with a reputable company so that you know that they’re actually paying your debt. You should ask for a statement every month. If you want to call your creditors and make sure that they’re doing their job the first couple of months, this may be a good idea.
Credit consolidation and debt negotiation are two options that you have when dealing with debt. They both have advantages and disadvantages. However, credit consolidation is a much more safe and effective option to dealing with your outstanding debt.