Debt Settlement vs. Debt Consolidation
Jan. 27, 2022
Many individuals will face financial issues at some point in their lives. When this happens to you, it can be hard to know what your next steps should be. You may feel like your situation is hopeless, but there are almost always options available to you. At Simmons & Greene, P.C., we’ve been helping our clients understand their debt issues and put realistic plans into place that work. If you’re confused about your options concerning debt relief, consolidation, or settlement, contact us today to set up a consultation. We’re located in Phoenix, Arizona, but our attorneys serve clients throughout the area, including Glendale, Peoria, Mesa, Chandler, and Scottsdale.
Understanding Debt Settlement
Before you can decide what to do, you need to understand the difference between debt settlement and debt consolidation. Debt settlement (also referred to as “debt relief”), is typically done via a third-party company that contacts your creditors to negotiate a deal on your behalf. The goal is to come up with an agreement where you pay off your creditor all at once for a lower total amount than you owe.
Your creditor gets a large lump sum of money all at once
You walk away having paid less than you owe
Eliminates debt quickly
Can help avoid bankruptcy
Creditors are not required to agree to a settlement
You need to have cash on hand to pay them off, either in savings or by obtaining a loan
It may hurt your credit score
Understanding Debt Consolidation
Debt consolidation, on the other hand, combines multiple debts from different creditors into one consolidated loan with one monthly payment and all under one interest rate. This is usually done through a financial institution like a bank or credit union that agrees to take on your debt and issue you a large loan in its place. This could be through a personal loan, a home equity loan, or a home equity line of credit (HELOC).
It may help your credit score in the long run
Easier to manage debts since there’s only one payment
A good option for those with multiple debts with high interest rates
Can help avoid bankruptcy
You won’t necessarily reduce the total debt owed
The term of your loan will likely be longer, meaning you may end up paying more in interest
If you don’t have decent credit you may not qualify for a low interest rate
Which One Is Right for Me?
Choosing the right approach will depend on a few factors. If you’re struggling to keep up with multiple debts but don’t have a lot of cash on hand, debt consolidation is likely the right choice for you. Debt consolidation is typically a better choice for those with decent credit and who have more or less kept up on their debt responsibilities, but know they’ll need relief in the near future.
Debt settlement is often a better choice for people who have been missing payments and are concerned about litigation or possible bankruptcy. In this case, if you can get your creditors to agree to accept a lower total pay-off, you can hopefully stave off the worst effects.
How Simmons & Greene, P.C. Can Help
We know how overwhelming it can be to be facing mountains of debt and feel like you have no options. At Simmons & Greene, P.C., we’re committed to actively listening to your concerns and helping without judgment, and we have the experience necessary to formulate a plan that works for you and your family. By taking the steps now to address your debt, you’ll be setting yourself up for a brighter financial future. If you’re in need of debt relief and are in the Phoenix, Arizona area, call us today.