Debt Consolidation Vs. Debt Negotiation

Debt consolidation verses debt negotiation depends on if people want to combine their debts or settle their debts. Financial troubles can occur to anyone at any time. However, how people decide to eliminate their debt can be the difference between financial freedom and additional debt.

Debt Consolidation: Acquiring Money to Eliminate Debts

People interested in debt consolidation want to combine all their debts into one loan. There are different options with debt consolidation. There are debt consolidation services that assist people in combining their debts into one loan. Often the loans have lower interest rates and lower monthly payments. Another option is applying for loans such as second mortgages or home equity line of credit to consolidate their debts.

One of the best advantages to using debt consolidation is paying creditors. Since all the debts are consolidated, people pay monthly payments to the financial institutions that lent the money. However, the financial institutions have already paid the individual credits when they assumed the debts. This means no more harassing telephone calls, voicemail messages and letters.

The Debt Remains

People using debt consolidation instead of settling their debt still have debt. Instead of owing multiple creditors, they owe one financial institution. Another disadvantage is when people place their secured property such as their homes to pay off unsecured debt like credit cards. According to the U.S. Federal Trade Commission (FTC), if people can’t make their payments on their second mortgage or equity line of credit—or if their payments are late, they could lose their home.

Debt Negotiation Means Paying Lower Payments

People who choose debt negotiation want to either pay their debts off, but for a lower amount. Some people choose negotiate settlements with creditors themselves. They may negotiate lower monthly payments or make one lump sum payment. However, people also use debt settlement companies that work on their behalf to negotiate lower payments and cancel part of the debts. People pay the debt settlement companies and the companies pay the creditors.

Debt Settlement Comes With Fees

Debt settlement companies have their disadvantages such as charging fees to help people. According to FTC, the fees can be anywhere from 10 to 50 percent of the amount of debt owed. Also, people using debt settlement companies may sometimes put their finances at risk. Bad debt settlement companies may not pay the money to creditors or wait so long to make a lump sum payment that creditors start legal proceedings.

Always Talk to an Attorney First

Always talk to a debt settlement lawyer rather than going through a company. An attorney is bound by ethical laws, so it's a much safer way for debtors to settle their debts and protect themselves from legal actions by creditors.

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