Reasons To Consolidate

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How Debt Consolidation Affects Credit
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Debt Consolidation and Debt Settlement

When you’re facing several thousand dollars of debt on top of harassing phone calls, bright pink mail, and nail-biting suspense, it is understandably easy to get roped into something like debt settlement . If you don’t have any assets to secure a loan, debt settlement can be the best option for you, but it certainly shouldn’t be something you walk into without being properly informed.

However, debt settlement and debt consolidation are two very different animals. Debt consolidation is a better option by far, but unscrupulous agencies often try to blur the defining line; confusing consumers and, in most cases, ruining any shot they had at a better path to financial freedom. Of course, it doesn’t help that the names are large globs of meaningless letters to most consumers, masking the purpose of each process and shrouding the whole idea of debt relief in a veil of mystery.

Video: How to Settle Your Credit Card Debt on Your Own

Settling for a Terrible Solution

Although debt settlement will decrease your overall debt owed, often by as much as 50% to 70% or more, it is definitely the black sheep of the debt relief family. Debt settlement agencies advise their clients to stop making all payments until they are done negotiating with your creditors , which can take quite a few months, or longer. This can add up to several 60, 90 and 180-day late payments, which takes a hefty toll on your score.

how does debt consolidation affect your credit?

You may also have to deal with write-offs on top of the big black hole left by the simple fact you went through a debt settlement agency, which really doesn’t sit well with future creditors. Even worse, the IRS sees the chunk of debt shaved off by settlement as income, and your state may want their share of this “income” too. Nevertheless, if you can’t qualify for a debt consolidation solution, debt settlement will make your debt easier to manage.

Video: Beware of Debt Consolidation Companies - Potential Pitfalls

The Truth About Debt Consolidation

It is so unfortunate many consumers think they are getting debt consolidation and end up with debt settlement - it is definitely easy to confuse the two if you look no deeper than the surface. While debt settlement decreases your overall debt owed, debt consolidation takes all of your debt and moves it into one low-interest loan. Essentially you end up with the same thing - smaller payments - but the effects on your credit are vastly different. In most cases, consumers use their home or other valuable asset to secure the debt consolidation loan.

debt consolidation

Secured loans have a lower interest rate than unsecured loans , often 10% or lower. Compared to your credit cards which usually run about 18% to 39%, on just $1,000 the difference in rate would save you at least $80 a year. Furthermore, any interest on loans secured by a primary residence are tax deductible, and so long as you make the payments on time, your credit score will increase. Now that you know, it’s up to you to make sure you get the best option for debt relief.

List of Credit Repair Agencies:

Champion Credit Repair Services
(203) 663-1388
(888) 933-2879

Envision Debt Solutions
(714) 656-4145

Free State Mortgage, LLC
(919) 562-7283

Credit Restoration Bureau
(757) 351-1111

Complete Mortgage
(989) 227-8483

Precept Financial Solutions
(972) 788-8126

California Credit Solution
(619) 980-5861

American Home Loans
(727) 898-0500

Americross Mortgage
(888) 889-4411

Austin Credit Svcs, Inc
(229) 382-4499

Lenders Financial
(570) 420-0166

TruClose Financial Services
(888) 510-9665
(412) 344-2350

American Loans
(801) 590-4627

Capital Resolution Service
(716) 664-4500
(800) 823-2469

Christian Debt Consultants
(800) 819-6843

Debt Reduction Services
(208) 378-0200

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  • Your Credit Report and Score: Six Costly Mistakes
  • What does your credit report score mean?
  • What will happen if I do not pay my credit card bills/debt?

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