Definitions debt settlement and deb consolidation

Definitions debt settlement and deb consolidation

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Video transcript

If you`re looking to get on top of your finances in the new year, debt settlement or consolidation could help you get on an even keel.

With the festive season come lots of good times but also a lot of bills. You may be thinking about the cost of the festive season and how you`ll manage your debt going forward. Trying to decide how to cope with debt can be an overwhelming and stressful experience, but it doesn`t have to be.

There are several ways you can deal with your debt and get your finances back on track. Two potential methods are debt settlement and debt consolidation, both of which are effective under the right circumstances.

So, which one is right for you? Well, it depends on your situation. Here are the key differences between debt settlement and debt consolidation to help you decide which strategy can help you get on an even keel in 2016.

Debt consolidation entails taking out a new loan to pay off all of the loans you currently have. This method makes repaying what you owe more simplified as you only need to make one payment a month, rather than several, which may be at a lower interest rate. Several institutions can offer this type of loan, including banks, private lending companies and credit unions. Larger loans can be secured on property and are termed secured home owner loans, these are often made available via authorised financial intermediaries such as First Choice Finance. 

For secured debt consolidation loans you are required to put up some form of collateral, so it would be wise to seek advice from a professional regulated firm before applying for this type of loan to help assess the pros and cons. Keeping up to date with current credit and mortgage commitments before applying will also be beneficial and there are many websites that you can use to do this.

Debt settlement does not involve taking out a new loan to pay off any existing loans. Instead, a third party contacts your creditors on your behalf and negotiates a better deal, hopefully with the aim to get a full an final settlement figure that is below the amount agreed at the outset. Of course this does mean you have breached your credit agreement and your credit record will represent this and it will show on your credit profile for up to 6 years.

Creditors will consider the debt paid in full and you then just have to pay whatever is left on the settled account with the firm who settled the bill. Keep in mind that using such a firm will result in additional payments or costs, such as a consultation fee to cover the price of their service which will detract from what you can offer the creditors. However you can do this sort of debt settlement yourself without involving a third party. Sometimes obtaining a debt consolidation loan and combining with debt settlement solution can be an option.

To decide what route is best for you, ask yourself what would best fit your circumstances. If you simply cannot keep up with repayments and cannot borrow enough to pay the full amounts, settlement may be your best option. 

However, if you`re just looking to make things simple and can refinance, consolidation could be for you. 

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