When you are up to your neck in debt and considering eliminating that debt, it's important to understand the difference between debt consolidation and debt negotiation. Both have the same goal in mind: solutions to eliminating your debt the fastest way possible without it hurting you financially. Before deciding which route to take, consider the following:
Debt consolidation is the process where a financial institution will loan you enough money to pay off all your debts. This could include all your credit card debt [http://www.examplepedia.org/examplet181-Credit_Counseling.htm], installment loans, auto loan, etc. This usually does not include a mortgage loan.
Benefits:
* The debt consolidation loan eliminates most of your outstanding debt and gives you a loan payment much smaller than your previous payments
* Your credit report shines with most all of your debts being paid in full
Pitfalls:
* The average consumer does NOT cut up their credit cards or close their accounts, then run up their debt again, thus now owing the debt consolidation loan payment and their new debt.
* Getting behind in new payments from new credit can be overwhelming and the chance of getting another debt consolidation loan is virtually impossible.
Debt negotiation is the process where a company steps in and negotiates with your lenders for a lower interest rate or eliminated interest thus making a lower payment per lender possible.
Benefits:
* You can eliminate or at the very least get a reduction in your interest rates and any penalties accrued
* You have a single monthly payment which will be significantly lower than your previous combined payments
Pitfalls:
* Your credit report will suffer slightly until everyone has been paid in full depending on your previous record
* You will find it extremely difficult to get any new credit until your debts have been paid in full
Before making a decision, weigh your options. If you think your credit score is above average, then debt consolidation may be your answer. If you are too far behind in your payments, then debt negotiation may be your only way out.
Debt consolidation is the process where a financial institution will loan you enough money to pay off all your debts. This could include all your credit card debt [http://www.examplepedia.org/examplet181-Credit_Counseling.htm], installment loans, auto loan, etc. This usually does not include a mortgage loan.
Benefits:
* The debt consolidation loan eliminates most of your outstanding debt and gives you a loan payment much smaller than your previous payments
* Your credit report shines with most all of your debts being paid in full
Pitfalls:
* The average consumer does NOT cut up their credit cards or close their accounts, then run up their debt again, thus now owing the debt consolidation loan payment and their new debt.
* Getting behind in new payments from new credit can be overwhelming and the chance of getting another debt consolidation loan is virtually impossible.
Debt negotiation is the process where a company steps in and negotiates with your lenders for a lower interest rate or eliminated interest thus making a lower payment per lender possible.
Benefits:
* You can eliminate or at the very least get a reduction in your interest rates and any penalties accrued
* You have a single monthly payment which will be significantly lower than your previous combined payments
Pitfalls:
* Your credit report will suffer slightly until everyone has been paid in full depending on your previous record
* You will find it extremely difficult to get any new credit until your debts have been paid in full
Before making a decision, weigh your options. If you think your credit score is above average, then debt consolidation may be your answer. If you are too far behind in your payments, then debt negotiation may be your only way out.
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