Debt Consolidation VS Debt Settlement


Debt consolidation and debt settlement may sound similar, but these two financial strategies work quite differently. Both methods are designed to improve your personal debt load but are used to resolve different issues. Debt settlement will allow you to jump-start your financial future as it will reduce the total amount of debt you owe. Debt consolidation, on the other hand, reduces the number of creditors you have.

What is Debt Consolidation?

The process of taking multiple debts from various creditors and lumping them together in one loan, or place, is debt consolidation. You ‘consolidate’ all your debt into one loan. With all debts in one loan, you have one monthly payment versus multiple payments to deal with each month. 

The benefit of debt consolidation may be psychological as you relieve the stress of having to juggle a multitude of payments every month. You could also attain a lower total monthly payment or lower average interest rate on your debts. Whether you save money on the interest rate will hinge on your credit and the length of the loan repayment terms.  

What is Debt Settlement?

Debt consolidation gives you the option of combining multiple debts into one loan, debt settlement uses a very different strategy. The settlement process offers you the chance of reducing your overall debt and jump-starting your financial future. Why does it jump-start your financial future? It effectively asks one or more of your creditors to accept less than you owe, thus getting you debt-free sooner. 

The benefit of going through debt settlement versus debt consolidation is you are able to eliminate debts without having to pay the full amount owed. In most cases getting a settlement is a much better alternative to filing bankruptcy if you are facing financial straits. 

Creditors are not obligated to negotiate with you on a debt settlement. It is to your advantage to have professionals working with you who understand this process and have the experience of communicating with creditors. JumpStart Financial works with you at every step to help you succeed in this process. 

Key Differences Between Debt Consolidation And Debt Settlement

These are the key differences between debt consolidation and debt settlement:

How They Work

  • Debt consolidation combines what you owe into one single loan
  • Debt settlement negotiates your balances to pay less than what you owe

Costs

  • The interest rate on your consolidation loan will vary, and the amount you pay will depend on the length of time you have the repayment loan
  • There are some fees attached to having professionals negotiate for you on settlement amounts. Your chances of success are much higher if you seek their help

Pros

  • Consolidation of one single payment a month does make it easier to manage your debt
  • Debt settlement also allows you to make one single payment a month and can eliminate debts for less and ward off any collection actions

Cons

  • Depending on the length of time your repayment loan is set for, you could end up paying more in interest rates
  • Debt settlement is not an obligation creditors have to agree with, working with professionals increases your chances, but it is still not a guarantee

Negotiating a Debt Settlement

Settling your debts requires you to have bargaining skills which is why JumpStart Financial is your best solution when choosing debt settlement for your financial situation. It is our mission to help you become debt-free, strengthen your creditworthiness and jump-start your financial future. Through our financial services and products, you have the opportunity to pay down debt, rebuild your credit and gain financial security. 

 

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