Debt Consolidation Loan

With the amount of debt going up and the ability to pay it off generally going down, there’s a lot of talk these days about consolidation debt loans and debt settlement. Most of what’s said, though, is little more than opinion and speculation, with very little actual knowledge about either process.

If you’re considering consolidation debt loans or debt settlement, it’s important that you have a basic knowledge of both before you can choose the one that’s right for you. Fortunately, they’re pretty easy to understand.

Debt Settlement

Debt settlement is different than getting a debt consolidation loan. When you settle a debt, you reach an agreement with your creditors that they will forgive part of what you owe, usually in exchange for immediate payment of the balance on your account. If you can’t afford payments and would rather take a hit on your overall credit score, this might be a good option for you.

Debt Consolidation

Consolidation loans are larger loans that allow you to pay off all of your smaller loans and then make one monthly payment toward the larger loan. Consolidation debt loans are the most helpful when you get a better interest rate on the single large loan that you were able to get on your other, smaller, lines of credit.

These debt loans are particularly helpful when most of your debt is owed on credit cards, payday loans, cash advances, or other types of high-interest unsecured debt.

Consolidation debt loans tend to be the most readily available for people who own homes or other property. Basically, the loan is a home equity loan in disguise, allowing you to use the value of your residence as collateral for the loan.

If you do not own a home but have other valuable property, like a vehicle, you might be able to get consolidation debt loans using that as collateral, as well. The loans will not be for as much money and may carry slightly higher interest, but could still help your situation.

There are some lenders who may consider offering unsecured debt loans to certain applicants, so it’s best to shop around to discover which lenders have lending policies that may fit your situation.

Which is Right For Me?

Usually, consolidation debt loans are a better choice than debt settlement, as long as you qualify for a loan with a lower interest rate than the debt you currently carry. To qualify like this, however, you will need a decent credit score, so if you’ve already hurt your credit your consolidation debt loans may not be as helpful as you’d hoped.

In addition, consolidation debt loans do not harm your credit score as much as a debt settlement does, so you will be able to borrow money again sooner. You will also be able to pay off all of your debt more easily, which can be a matter of pride for some people.

Debt settlement is only better than consolidation debt loans when you cannot qualify for one of these. It is a more drastic action, so you should try for a debt consolidation loan before you pursue debt settlement. Only when that falls through is the settlement a real option.