Debt Settlement & Credit Repair

Many people think debt consolidation and debt settlement to explain the same thing. This is inaccurate. Debt consolidation is when you take a bunch of smaller debts and combine them into one large loan. Debt settlement is when a professional is hired to negotiate down your debt balance, usually as much as 70% off. So if anyone starts using these phrases interchangeably you can explain the difference to them.

There are obvious advantages of using debt settlement to minimize your debt and start repairing your credit much faster.

For some people it can be hard to repay the full amount of debt, especially if payments kept getting missed or are late. Those late fees and non-payment fees can add up extremely fast. To the point where more than half your loan can be extra fees due to non-payment.

A debt settlement service can is a good alternative to bankruptcy and may even be a good solution instead of debt consolidation depending on your situation. Debt settlement will have an impact on your credit but it won't last as long as a bankruptcy.

With a debt settlement service your payments are usually held in a protected account like an escrow account while the service company negotiates a less-than-full payment with your creditors. Deals can be made separately which allows you to pay off one creditor at a time in full. Rather than making multiple payments to different creditors each month, all of the money saved up goes towards one creditor, and then the next. Depending on your level of debt you can become debt free within 3 years in most cases.

One thing that is important to note here is even if you are working with a debt settlement service company creditors can still pursue legal actions against you, like wage garnishments, collection activities and lawsuits. A debt settlement company does not protect you from any of these.

Furthermore, in many cases you can act on your own behalf and call up your creditors and try to negotiate down the balance yourself. You don't necessarily need a settlement service, but they are professionals and do know how to negotiate properly so if you have any doubts on your ability to get a good deal seek out a service.

It's also important to note that in most cases using this method will automatically close your account with the creditor.

Understand that this type of debt reduction can get you out of debt fast and you can focus yourself on repairing your credit as soon as you are debt free. Until then there are some benefits and potential repercussions of course.