For a person overburdened with credit bills, deciding on debt settlement vs debt consolidation can be confusing. Each will help raise credit scores, eradicate bad debts, and liberate the individual from collections efforts. Read on to find out more.
Debt Settlement
Settling a debt is the process of negotiating a lump sum payment or short series of payments to eliminate an outstanding balance. This is the last effort of creditors to collect any portion of the amount owed before incurring the cost of taking the case to court. The lump sum is between forty and sixty percent less than the total balance plus interest. If a payment plan is arranged, it is generally a short one, lasting two to three months and splitting the discounted sum into halves or fourths.
The consumer can settle an account without the assistance of an attorney in most cases, unless they choose to dispute the claim. Creditors are in touch with the debtor as soon as they purchase the account from the original issuing bank or other party, and are usually ready to make a deal. Debtors can and should request a validation when they speak with the collection’s agent. This verifies the amount is valid and the agency has a right to collect the money from the borrower. If the borrower intends to dispute the matter in court, an debt settlement attorney is recommended.
Once the account is settled, either in court or over the phone, the debtor should receive a printed or email receipt indicating the amount, the details of the account paid and to whom, and the date and method of payment. Reviewing a credit report within two months of settling the account will ensure it has been reported properly.
Debt Consolidation
Consolidation is the process of combining multiple credit cards or other outstanding balances. The intent is to lower the interest rate and create one lower payment which is easier to keep track of. Many companies charge an upfront and ongoing fee to set up a payment schedule, negotiate with lenders, and monitor the borrower’s progress. Where these fees are exorbitant, the company should have a verifiable track record of success, and clients should be working directly with attorneys.
Before looking for professional assistance, there are steps individual can take for debt and bill consolidation on their own. Begin eliminating balances by transferring them to other cards. While it may not be possible at first, work towards having the entire amount on a single card with the lowest interest rate. Contact all creditors and indicate the intention to set up a payment plan to bring the account current; alternatively, settle collections accounts for as little as the company will accept.
The individual then develops a schedule of payments coordinated with their creditors. To ensure they are made on time, automate the schedule if possible.
While debt settlement and debt consolidation are the first steps to improving credit scores, an account which needs to be settled can have a greater negative impact. For the best outcome, avoid letting credit card balances go to collections, and always pay on time.
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