Debt consolidation is often confused with debt settlement when people are unsure of what either process does. So what is the difference? Well debt consolidation is simply the refinancing of debt in order to reduce it and repay it at a lower interest rate. When a debt is consolidated, it is usually taken out in one sum, rather than several loans being paid off individually. The result is that the debtor pays back the debt at a lower interest rate and in most cases, the debts are paid off over a longer period of time.
Debt settlement on the other hand is the process of negotiating with your creditors in order to achieve an actual settlement and a lower interest rate. In the end you will pay the amount agreed under the terms agreed upon by both parties. This often happens in exchange for an upfront fee paid to the debt consolidation company. If you need to get rid of a number of debts, debt settlement may be the best way to pay them all at once.
In short, debt consolidation is a good option if you find that your credit cards have a fairly large interest rate and are getting close to the limit on your cards. The lower your interest rate the more money you will save. It is important however that you are aware of the consequences of this type of debt consolidation before you go ahead and apply for a loan. Although it is relatively easy to qualify for one of these loans, your credit score will suffer a hit and this is especially so if you are applying for a home equity loan as you will be considered a risk because of the possibility of repossession. Also the good news is that as long as you make your monthly payments on time you will not have any problems with your credit score.
If you are still struggling to keep up with payments and find that you are falling behind every month, it is a good option to consider debt consolidation as part of your debt relief plan. Debt consolidation will take the total amount you currently owe and lump it together into a single monthly payment. This payment will be much easier for you to handle and it will allow you to get out of debt faster. The reason why it is so good option for dealing with high interest rate debts is that you will only have to make one payment instead of a number of them each month.
Another thing you will enjoy is the fact that you will be able to reduce the amount you pay for your bills each month. It is important to remember though that debt consolidation may not be a good idea if you are already struggling to keep up with your payments. If you have fallen into arrears and need help paying them then debt consolidation may be a good idea. However, if you simply want to buy yourself some time and avoid paying the minimum payment, then just doing something to improve your credit score is also a good idea.
There are many other benefits that you can enjoy by taking advantage of debt consolidation. Perhaps the best benefit you can enjoy is lower monthly payments and the ability to save money on interest rates by lowering your total debt. Not to mention, the peace of mind you will have in knowing you have a clear plan in place on how you are going to get out of debt. You no longer will have to worry about missing payments or wondering when you are going to get back on track. By taking advantage of debt consolidation, you can get back on track with your finances and move forward in life.