Debt Settlement vs Debt Consolidation
Debt settlement and debt consolidation are two terms heard often and mistakenly interchanged for each other. However, consolidation and settlement are two different things entirely.
Debt consolidation takes the total amount of debt a consumer has with credit cards, store accounts, and home equity loans and consolidates them into one single amount which payments can be made against.
There are two options which can be taken at this point; either the consumer makes the single payment towards the consolidated amount or takes out another loan to pay off all the consolidated accounts and pays back the single loan over time.
The problem with debt consolidation is that often, the consumer can make cutbacks in their spending and tackle one debt at a time until it is paid off and then repeat again for the next account. Debt consolidation often has fees and interest applied which may be higher than a payment plan with an individual account.
Debt settlement has the consumer, or a debt settlement company, making an offer of less than the total amount owed in order to close out the account. Often, the consumer can save 25, 50 or even 75% of the total principal owed.
The problem with debt settlement is it can hurt the credit score of the consumer as they are not paying back the full amount they owe. Also, credit card companies will often only give settlements for accounts that are severely in arrear and in danger of charge off.
Consumers should know the difference between debt settlement and debt consolidation when they are choosing the correct debt solution path.
Wednesday, June 30, 2010
Tuesday, June 29, 2010
Debt Settlement Reduction
Debt Settlement Reduction
Debt Settlement companies attempt to negotiate a lower balance on credit cards and negotiate a lower one time settlement for the consumer.
Reducing the total balance owed on one or more credit cards for a settlement is the first step taken by either a debt settlement company or the consumer. Credit card companies want their money but will often settle for a percentage of the total amount due to get an at risk debt off the books.
Consumers who have had a reduction in income through job loss or other reason, often cannot keep up on minimum credit card payments and other bills. They have the choice of letting the cards go into charge off status, collections or declare a form of bankruptcy.
Debt settlement allows the consumer to make an offer to a credit card company of a lower amount than the total owed. One way to get the most realistic and lowest settlement is to ask for a reduction in the total debt.
Debt reduction companies, which perform this task for a fee or a percentage of the amount saved, claim to have ways to get a larger amount reduced from the total debt. Most simply make repeated requests for a settlement offer to the credit card companies.
Debt Settlement companies attempt to negotiate a lower balance on credit cards and negotiate a lower one time settlement for the consumer.
Reducing the total balance owed on one or more credit cards for a settlement is the first step taken by either a debt settlement company or the consumer. Credit card companies want their money but will often settle for a percentage of the total amount due to get an at risk debt off the books.
Consumers who have had a reduction in income through job loss or other reason, often cannot keep up on minimum credit card payments and other bills. They have the choice of letting the cards go into charge off status, collections or declare a form of bankruptcy.
Debt settlement allows the consumer to make an offer to a credit card company of a lower amount than the total owed. One way to get the most realistic and lowest settlement is to ask for a reduction in the total debt.
Debt reduction companies, which perform this task for a fee or a percentage of the amount saved, claim to have ways to get a larger amount reduced from the total debt. Most simply make repeated requests for a settlement offer to the credit card companies.
Debt Settlement Plan
Debt Settlement Plan
Debt Settlement Plans are popular these days. Turn on the radio or television and the ads for debt settlement companies are everywhere. It makes sense; the economy is tough and consumers have a great deal of debt. Settling credit card debt seems like a good idea.
Before making the call to a debt settlement company, make a debt settlement plan. Here's what to do:
- To settle an outstanding credit card debt, consumers need money. Like the chicken and the egg, it was a lack of sufficient money which put the credit card holder into hot water. If the problem is complete lack of money and the inability to bring in income, another option, like bankruptcy may be better. For debt settlement, the consumer needs a source of income and savings in available cash to pay an offered settlement.
- Is the account four or more months behind? Most credit card companies will not accept a settlement offer unless card payments are four or more months behind. Generally speaking, the account has to be in danger of going to charge off or to an outside collections agency. If current with credit card accounts, then asking for a lower interest rate or payment plan based upon lower income may be a better solution.
- Be ready for collections. To get a debt settlement offer accepted, it takes time. During this time the card may go to charge off and collections activity. Calls may come from a special department with the credit card company or worse, may come from an outside collection agency. Outside agencies are more likely to make a settlement with the card holder, however, many consumers don't like to deal with outside companies and would rather deal with the original creditor.
Before calling any advertised debt settlement company, have a debt settlement plan in place first.
Debt Settlement Plans are popular these days. Turn on the radio or television and the ads for debt settlement companies are everywhere. It makes sense; the economy is tough and consumers have a great deal of debt. Settling credit card debt seems like a good idea.
Before making the call to a debt settlement company, make a debt settlement plan. Here's what to do:
- To settle an outstanding credit card debt, consumers need money. Like the chicken and the egg, it was a lack of sufficient money which put the credit card holder into hot water. If the problem is complete lack of money and the inability to bring in income, another option, like bankruptcy may be better. For debt settlement, the consumer needs a source of income and savings in available cash to pay an offered settlement.
- Is the account four or more months behind? Most credit card companies will not accept a settlement offer unless card payments are four or more months behind. Generally speaking, the account has to be in danger of going to charge off or to an outside collections agency. If current with credit card accounts, then asking for a lower interest rate or payment plan based upon lower income may be a better solution.
- Be ready for collections. To get a debt settlement offer accepted, it takes time. During this time the card may go to charge off and collections activity. Calls may come from a special department with the credit card company or worse, may come from an outside collection agency. Outside agencies are more likely to make a settlement with the card holder, however, many consumers don't like to deal with outside companies and would rather deal with the original creditor.
Before calling any advertised debt settlement company, have a debt settlement plan in place first.
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