What is Debt Settlement?- Read On!
Debt Relief in a Nutshell – What Does It Mean? Many individuals are unclear as to what debt relief really means as it is in fact an umbrella phrase used to describe a variety of different strategies for dealing with, reducing or removing unsecured debt. Debt-relief strategies include debt consolidation, debt settlement, credit management and bankruptcy. Let’s break these down one by one and discuss the pros and cons of each.
Debt Consolidation: Eliminate debt by combining multiple monthly payments into one lower interest payment. This provides immediate relief from harassing creditor calls and letters as well as lowering your credit score. Debt consolidation is usually done through a loan company or credit union. For example, debt settlement involves arranging a lump sum payment with the debtors’ creditors in exchange for having the debtors pay a small percentage of their total debt each month until the full amount has been satisfied. Credit management is a combination of all three strategies, as it consists of paying a small amount of your debt each month until the debt is paid off completely.
Debt Management: Many people use debt management plans in order to reduce their debt, manage their financial situation and eventually pay it off completely. Debt management companies work with their clients on creating a customized budget that will help them manage their money effectively while meeting their obligations. Debt consolidation is often offered as part of a debt relief program.
Bankruptcy: Most people are aware that filing for bankruptcy protection can be devastating to their credit. Yet, many people choose to file for bankruptcy protection at least in part because it allows them to eliminate the collection calls and letters from creditors and lenders for up to seven years. However, filing for bankruptcy protection should be considered as the last resort after all other alternatives have been explored and the debt settlement or consolidation plan has been implemented. Once a person has filed for bankruptcy protection they cannot consolidate or settle their debts and can no longer make payments to their creditors.
As you can see, there are distinct differences between debt settlement, consolidation and bankruptcy when it comes to the different methods of eliminating and managing existing debt. When choosing which method to use for a particular situation, it is important to take a long hard look at all the options that are available to you. In addition to evaluating your personal financial situation and deciding which type of debt relief and settlement will work best for you, it is important to also keep in mind the impact that any one decision could have on your credit report and your future.
For many debtors, bankruptcy is often viewed as the most extreme step as explained by Louisiana credit management specialist. For others, debt relief through a combination of settlement and consolidation may be their only option. No matter what steps a debtor takes to manage their debt, they should always avoid taking any steps that could damage their credit. To learn more about consolidating and negotiating your way out of debt, contact a consumer credit counseling agency today. Their expert advice can help you get back on track.