Software:
Links:
|
| Debt Consolidation vs. Debt Settlement |
|
|
| When it comes to debt relief, there are several different types that can provide
effective results to those who need to either get rid of their debt through a
structured payment program or in one lump sum payoff. Quite simply, this is the
difference between debt consolidation and debt settlement. Before deciding which
one is right for you, it may help to know a little more about each option and
how it will affect your future ability to obtain credit. Many people may not
realize this, but there is a big difference between debt consolidation and a
debt consolidation loan. The latter involves a lender granting money to be used
for the purpose of paying off other debts in exchange for one single monthly
payment. Debt consolidation, on the other hand, is a term used by many
non-profit organizations that offer debt management services without actually
issuing a loan. With debt consolidation, your bills are still combined into one
lump sum payment and payable directly to the non-profit agency who then
distributes individual payments to your creditors based on a customized
agreement. In most cases, a debt consolidation program will allow debtors who
are seriously delinquent with their bills to regain current status with
creditors. Because a debt management company works to negotiate lower interest
and monthly payments with each creditor, most individuals will see their credit
reports updated to "Paid as agreed" within 1-3 months of consecutive monthly
payments through the new program. Debt settlement is a fast and permanent
solution to debt problems, but it often requires a lump sum payment in order to
satisfy the entire debt. As the name implies, debt settlement allows you to
settle a debt at a fraction of the account balance. Depending on the length of
delinquency, some debts may be settled for as little as 20% or as much as 80% of
the total account balance. When you enter into a debt settlement with a
creditor, the account will commonly be reported as "Settled account" on your
credit report. Although this is considerably less desirable than "Paid as
agreed", it shows that you have made a good faith effort to repay the debt in
accordance with your ability. At the same time, a notation of a settled debt is
much better than continued late or missed payments or, in extreme cases, even
bankruptcy. Once a debt settlement agreement has been reached and paid in full,
the lender will "forgive" the remaining balance on the account. In some
instances, depending on the amount of forgiven debt, some lenders may issue an
income form to both you and the IRS. This means that a portion of the debt may
be considered as income and, therefore, may be taxable. Once you begin to fall
behind with debt payments, it's important to regain control over your finances
as quickly as possible. Not only can a poor credit rating affect your ability to
get credit, but it can also hinder the potential for future employment. Today,
many employers perform a credit check on their new employees and it can make a
great deal of difference whether you attempted to rectify your financial
problems or just ignored them. At the end of the day, the best way to handle
budget woes is to face them with the knowledge that there are options to getting
|
| |
|
|
