Debt negotiation vs. debt consolidation are two options that you have if you are in a financial crisis. A clear sign of a financial crisis is when your bills become too much for you to pay on a monthly basis and you never have money for necessities. If this is your situation, then it is a good time to consider debt negotiation or consolidation for solving credit and debt problems.
Debt consolidation is service offered by debt management companies who help you through the process. During debt consolidation, you will be making monthly repayments that are typically lower than what they were before the consolidation. A debt management company will negotiate with your creditors to lower your interest rates and offer you a lower single monthly payment. This payment is made to the consolidation service, which then in turns pays your creditors. A great option for solving your debt problem, and will usually require 2 to 5 years of repayments to become debt free.
Another great benefit of using debt consolidation is it will put an end to creditor harassment as long as you maintain your minimum monthly payments. Of course the downside of a debt consolidation plan is canceling all credit cards that you include in your plan. There is also an administration fee that the company charges every month until the completion of the plan. This fee does not go towards paying off your creditors and can range up to $50 per month.
Debt negotiation settlement is another option for those who cannot handle their unsecured credit payments. This is usually offered to people who cannot make the payments of a debt consolidation program. Debt negotiation services are sometimes offered by the same debt management companies that set up your consolidation, or sometimes by companies that only deal with this sort of debt management. It is the next step in solving credit problems.
A benefit of a debt negotiation service is that you do not make payments to your creditors; instead you make monthly payments to the debt negotiation company or to your own bank account. During the time that you are making your monthly payments, the debt negotiation lawyers are doing their job by negotiating with your creditors for an account payoff up to 50% of you total debt amount. Once the settlement is negotiated, and then the debt negotiation company makes a payment to your creditor to pay them off.
The bad side of debt negotiation is that the program will lower your credit score until you are finished with your repayments. The good thing is that many debt negotiation companies will require your creditor to update your credit report to show “paid in full”. This will help the negotiation not show up as a negative on your credit history.
Of course, some debt negotiation services include credit repair services that can help to remove negative items from your credit report. This is something that you will pay for as part of their service.
Some debt negotiation companies include a credit repair service that will remove the negative items caused by the debt negotiation program. You pay for this service as part of their program.
Understanding the difference between debt negotiation and debt consolidation should help you to make a decision in what service is best for you.
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