Debt Consolidation is a credit debt strategy that restructures unsecured debt, such as credit card debt, into secured debt such as a loan from a bank. Your unsecured debt, which can be from multiple creditors, is consolidated into one loan, with one payment from one creditor.
Debt Settlement is a negotiation with creditors to reduce the amount of money you owe. Debt Consolidation transfers your entire unsecured and credit card debt to a new creditor. This is why it is called Debt Consolidation, and your debt is combined, united, or grouped into a single debt. Under Debt Consolidation, imagine adding up what you owe and paying that total to one creditor. Under Debt Settlement, imagine subtracting an amount from each creditor you owe money to, then paying only that amount.
Unsecured and credit card debt does not require collateral to be posted. Secured debt, such as a mortgage loan, requires collateral to be posted. In the event that you can not repay the secured debt, your creditor will have the option to take the collateral you posted to repay your debt. With unsecured debt, there is nothing for the creditor to take. Debt Consolidation typically uses Home Equity loans to consolidate your debt into one
payment. If you are unable to repay this secured debt obligation, you will be at risk of losing your home.
The amount of unsecured and credit card debt you owe will not be reduced with a Debt Consolidation strategy. The new creditor will have a different set of terms and interest rates than your current creditors but will not reduce the total debt you owe. There may be an opportunity to reduce your interest rate or reduce the amount of your monthly payments; however, the total debt does not change.
It is possible that you will end up paying more in the long run to resolve a debt consolidation loan than you would by not participating in a debt consolidation program.
The reason is that you are now paying on a loan that probably has a fixed term (number of months or years that you will give the creditor money) and an annual percentage rate (interest) that is possibly higher than what you are currently paying.
Essentially the program lasts for the life of the loan. Like your car payment loan or your home mortgage loan, Debt consolidation loans have a term, the number of months or years until the loan is repaid (plus interest, of course). If you have a 5-year auto loan, as an example, you must pay money for five years to the lender until you have repaid all of the loans. In this example, it took five years to repay the loan. Debt consolidation loans work the same way.
We understand the burden that debts can place on individuals and families, and we are committed to helping you overcome these challenges.
Debt settlement services are not appropriate for everyone. Enrollment into the program may be adversely affect creditworthiness; May result in collections or legal motions by creditors or debt collectors; and may increase the balance owed due to accrual of fees and interest by creditors or debt collectors. to pay your monthly bills in a timely manner may result in increased balances and can harm credit ratings. Not all creditors will agree to reduce the principal balance.
Debt-settlement services are not appropriate for everyone. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors may agree to reduce the principal balance, and they may pursue collection, including lawsuits. There are also required verbal and written disclosures and warnings.
