The economic crisis has brought many people into the fold of miserable financial situations. People are continuously struggling to fulfill their daily needs and the rising debt is another thing that has been bothering them a lot. All these ultimately make them to think filing for bankruptcy. Bankruptcy is a stressful situation and one should avoid it, instead take help of various debt relief programs available these days. These programs suggest for two different kinds of measures – debt settlement and debt consolidation.
In debt settlement,you try to negotiate with your creditors for reduction of your debt amount. You can hire a settlement company for the purpose or even can try your own luck. This measure is usually recommended for the people who find it difficult to even make their minimum monthly payments. If for last three months a debtor has not made any payments, he or she should quickly opt for a settlement program. This is the best step for him or her in solving all debt related problems.
The benefit that you get from a settlement program is that you need not to make payments to your creditors. The settlement company comes into the scene and makes payments on behalf of you. They get you a reduction of around 40-50% in your total debt amount. The negotiation helps to settle your dues by paying a one-time lump sum amount to the creditors.
The disadvantage of a settlement program is that it adversely affects your credit score till then you are a part of the program. So, it’s important that your hired company pursue the creditor to show the amount paid in full in the credit report in order to avoid showing up the negative points on your report.
In debt consolidation, your creditor offers you a lower monthly payment. This lower amount is due to the lower interest rate that your creditor agrees to charge you in order to ensure a steady cash flow into their account. A professional consolidation firm negotiates with your creditor to lower the interest rates. In this manner, you save some money every month.
The consolidation of debt is always a safe choice, as this stops the collection agencies from giving you harassing calls. The disadvantage of the debt consolidation plan is that you will no more able to use credit cards those have been included in the program. Moreover, you are subjected to make your first payment toward the program and also some additional administration fee every month.