How to Choose Between Debt Consolidation and Debt Settlement

If you find yourself in a situation where you are overwhelmed by several debts or bills, you may be trying to decide if debt consolidation or debt settlement is the better option for you.

Below are some tips and steps that you can take to help you decide which option will be better for you.

Gather all your debt details

Your first step will be to gather all your debt details so that it is clear to you what debts you have, how much you owe, what the interest rates on each debt are and the period of repayment.

It is also important to find out which debts are overdue or have to be paid soonest so that you are able to prioritize what you need to settle immediately.

How much can you afford to pay monthly?

You then need to analyze your monthly budget so that you can appraise what your income is, in relation to your debts and other monthly expenses.

Your target should be to find out what expenses you can cut back on in order to maximize on the amount that you can pay each month to settle your loan and become debt free.

Calculate the bare minimum that you should spend on necessary living expenses such as food, transport, utilities and housing. Cut back or do away with unnecessary expenses.

Once you have done all the necessary calculations, you can now determine the maximum amount you can afford to pay each month.

Research and get help

After you have all your facts and figures in order, you can either do some online research or visit a debt relief company so that you can determine what your options are. The debt relief company should be able to offer you either a settlement program or a debt consolidation program.

Decide which option is preferable for you based on the facts that you gather. Once you have decided which option is better for you, the debt relief company should assign a consultant who will negotiate on your behalf with your creditors. The consultant should be able to negotiate for lower interest rates and a lower debt amount to be repaid.

A consolidation program or a settlement program?

With a consolidation program, you will usually find that the interest rates that you will pay on a monthly basis will be very low, but you will pay the loan over a longer period of time, even up to twenty years. This usually means that you will pay a larger amount once you have completed your payments.

With a settlement program, you have to deposit money in a trust account and after it reaches a specific amount, the debt relief company will negotiate with your creditor for a much lower debt amount to clear your outstanding debt.

As you decide which option is better for you, find out what the repercussions for defaulting on each program are and make sure that you can abide by the program of your choice.