Updated: Oct 3, 2020
Are you aware of the terms debt consolidation and debt settlement? Well, it is important to be aware of these concepts if you are facing debt trouble and want to come out of it fast.This is why we will make a comparison of debt settlement and debt consolidation here.
Comparing Debt Settlement and Debt Consolidation
Facilities That You Can Acquire In Both the Cases
When you opt for debt settlement and debt consolidation, then in both the cases you get hold of free online consultation. In case of debt consolidation, you can also have a face to face meeting with the consolidation firm representative to know the details.
For debt settlement, you can also avail the free telephone call facility to acquire more information about the settlement of debt.
Financial Review in Consolidation and Settlement
When you want to opt for debt consolidation, then the financial review holds a lot of significance here. The consolidation firm will analyze your debt, income and your expenses also.
Ideally, it is important that you should be making every payment on time in case of debt consolidation. You can be maximum six months behind on your payments. There is no minimum requirement of debt amount in case of debt consolidation.
Things are a bit different when you opt for debt settlement. It is essential that the debt is more than six months behind. The settlement companies should also ensure that they do not work with those accounts that are following the current mode.
Debt settlement does have a minimum debt requirement,and the minimum debt has to be about $10,000.
The Disbursement Scenarios
When you opt for debt consolidation, then the payment is disbursed to every creditor on a monthly basis.
When you decide to go for debt settlement, then it that does not utilize the concept of monthly payments. In debt settlement, the monthly payments are kept in the trust account. The creditors do not get paid till the account gets accrued. It may take some months or even years for amount accumulation.
When sufficient amount is available in the account, then every creditor gets paid individually.
The Fee Structure for Debt Consolidation and Settlement
You have to pay a nominal fee for debt consolidation. This fee is charged on a monthly basis. When you give the fee to the debt consolidation service, then it helps the company to maintain your account.
For debt settlement, the fee is a percentage of your debt. This is about 15% to 18%. When your money is accumulating in the trust account, then the settlement company does not withdraw a penny. However, they do charge the fee.
The Credit Score Impact
The credit score does not get harmed when you make the debt consolidation payments on a monthly basis. In fact, timely payments improve the score, but when you consider debt settlement, the situation is quite different.
The payments are not cleared on a monthly basis in debt settlement. This is why your credit score is severely affected. This is why consider consolidating your debt when you have to clear away your debt.