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Would Debt Settlement Or Debt Consolidation Be Right For You?

By Michael Redbourn

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Published: 04Sep2009
Word count: 620
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If you've previously read about, and already tried lots of different ways to reduce your debt, such as paying off the smallest debt first, or the one with the highest interest first, and variations of many things in between, but your debt mountain just keeps getting bigger, then you're not alone.

Lots of the available systems can work, but if they don't, it might not be your fault, but simply that you have too much debt, and the compounding interest is just burying you.

So What Are The Alternatives?

Turning to a good credit counseling agency would be good of course, but if your present state mirrors the one described above, then it's unlikely that they'd be able to suggest anything other than debt settlement or debt consolidation, with the exception of bankruptcy.

Bankruptcy has its place of course, and it's always an option, but even that's not as easy as it once was, and in any event, either debt settlement or debt consolidation should always be tried before filing for bankruptcy, which will ruin your credit rating for at least seven years.

Debt Settlement Explained

Debt settlement basically means that the creditor and debtor agree to new loan terms that are more favorable to the borrower and if the debtor sticks to the terms of the agreement then it's something that's good for both parties because the debtor pays less, and the creditor avoids forcing him into bankruptcy.

The process would not be overly complicated if only one creditor were involved, but that's seldom the case. The major complication is that every creditor wants the best deal that he can get and is not the slightest bit interested in other creditors or the deals that they're making with the debtor.

What this means in essence is that deals often have to be renegotiated several times before they're finally signed, and given the fact that credit companies make it intentionally difficult to talk to anybody that can make a decision, it's incredibly frustrating and stressful.

It is of course possible to handle the whole process alone, but it's highly nerve-racking if you're personally involved, and if you're not sure that you can handle additional stress then a debt settlement company that's BBB (Better Business Bureau) affiliated might be the best way to go.

Debt Consolidation Explained

Debt consolidation means combining all your individual debts into just one debt, that will cost you less in interest and fees than all the separate debts combined.

Be aware that debt consolidation is normally only available to people who's credit is still in reasonable shape, and if yours isn't then debt settlement and not debt consolidation would probably be the better the way to go.

There are plenty of companies that offer consolidation loans to people with even terrible credit, but they're usually very expensive, and if you're still tempted by this route, then be sure to check out all the fine print in the contract.

If however, you're credit score is still better than poor then a debt consolidation company might be the answer because it will;

a) Carry out all the negotiations, and get the best possible rates.

b) Stop the harassing phone calls and knocks on the door.

c) Arrange for one set amount that has to be paid every month.

d) Remove a tremendous amount of stress from a highly stressful situation.

But please be sure there are no upfront fees and do check the small print to see what happens if you can't make the regular payments.

An additional upside to debt consolidation is that your credit score will be less affected than if you were to opt for debt settlement, provided you stay the course and don't default.

The author of this article was a film producer, and award winning film sound editor for many years. He has a passion and a flare for economics, and one of his websites -> Pay Off Debts features the famous Get Free In Three system which has helped a huge number of people get out from under suffocating debts.

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