As a consumer, you need to know the definitions and differences between debt consolidation and debt settlement.
Debt consolidation is described as taking out a loan to pay off other unsecured financial obligations. However, a consolidation loan normally involves securing this new loan against an asset which serves as collateral for this obligation. When the economic climate was better, a consumer would go to their bank and apply for a home equity loan as a method of consolidating debt. A home equity loan was cheaper than the combined interest rates on the consumers outstanding unsecured credit card debt. But this does not solve the problem for the consumer, since they only added new debt to their current situation and repeating the cycle of using their credit cards.
So in today, economic environment, the consumer’s primary asset is their home. The majority of banks in today’s market are not lending unsecured monies to consumers for consolidation loans with some type of collateral. The equity positions in the home’s are not holding their value.
A debt settlement program, is a process to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full. The process involves you putting aside a certain amount of money each month to accumulate monies for the negotiations to begin on your behalf. By using a debt settlement program, in some cases the outstanding debt by can be reduced by more than 50%.
You are reducing debt not adding more debt using a debt settlement company. Debt settlement when compared to debt consolidation is a better option. Because as a consumer you are taking charge of your repayment plan.
