Can debt settlement be considered as a way to consolidate debt? When it comes to combining multiple debts, most people think that debt consolidation loan is the perfect solution. While that is true, there are other options that you can use in order to combine your various credit accounts.
In essence, you can say that you are consolidating your debts when you try to settle them. You will be using one technique to pay them all off. Of course, the details will be slightly different if you compare it to the other debt relief options to consolidate credit. But without a doubt, it can be very effective in helping you pay off debt – and it can even help you save money in the long run.
What is debt settlement?
Debt settlement is known by other names – debt arbitration, debt reduction, or debt negotiation. There are three important truths that you need to know about this debt relief option.
It is for those who have already missed out on payments
Reports reveal that a lot of consumers have debt in collections and credit card delinquency still continue to rise. If you have missed your payments, then that is an indication that you can try to have your debts settled. But if you have been meeting your payments, then you cannot qualify. Ideally, this debt solution is for those who are on the brink of bankruptcy.
You only pay a portion of your debt
Since you are unable to meet your monthly payments, that means you cannot afford to pay the whole debt anymore. Debt settlement can help you reduce what you owe by negotiating with your creditors and lenders. The idea is to tell them that you can no longer afford to pay the whole debt, but you can pay a portion of it. To make them agree, you need to assure them that you can pay it in a lump sum. Or at least, within the shortest time possible.
Anything that is not paid will be forgiven
When you negotiate to settle your debts, you will be asking the creditors or lenders to forgive whatever amount is not paid by the lump sum. For instance, if you owe $5,000, you will pay $3,500 in a lump sum and have the $1,500 forgiven. You have to make sure that they agree to this first, and that they provide a document that will prove their agreement. If not, you need to keep on negotiating.
Admittedly, this method will end up pulling your credit score down. The missed payments will do that to your score. That might be hard to accept especially if statistics reveal that the FICO credit score is at its all-time high right now. However, you need to make sacrifices if it means you will reach debt freedom immediately.
And you should not worry about that credit score. Once you are free from debt, you can start using credit again so you can build your score up again. Of course, you need to make sure that you can meet the payment due dates and that you will be more responsible with your use of credit this time around.
How is your debt consolidated through debt settlement?
Now that you understand what debt settlement is, the question remains – how can it be considered as a way to consolidate debt? Both setting and consolidating debts can get you out of a financial mess. But that is not the only reason why people want to consolidate debt.
People prefer to consolidate because they only have to pay one account. That makes it easier to monitor. Not only that, they can save money if they opt for debt consolidation.
If that is your reason to consolidate debt, then that is also something that you can get when you settle your debts. At least, this is true if you work with a legitimate debt settlement company. They will help you settle your debts with the different creditors and lenders that you owe money to.
It will feel like consolidation because their debt arbitrators will represent you by doing the following.
The debt arbitrator will handle all your debt negotiations
First of all, the company, through the arbitrator, will negotiate on your behalf. If your debts are in collections, they will be the ones to take the calls for you. They will also be the ones to talk to the collector to negotiate for a settlement. They will basically negotiate the lump sum amount that you are allowed to pay so the remainder of your debt will be forgiven. These professionals will make sure that you can save as much money as you can.
This will leave you with less stressful life. You do not have to worry about getting the collection calls – which can sometimes get abusive and threatening. All you have to do is to focus on saving up for the lump sum amount that you need to pay in order to settle your debts.
The debt arbitrator will send the payments on your behalf
Consolidating is also marked by the one payment that you need to do. When you enroll in a debt settlement program, all your payments will be sent to one account that is set up by the company for you. This account will remain to be fully under your control. But it will hold the money that you will use to settle your debts. You do not have to keep track of different credit accounts. Everything will be sent to this account.
As you can see, debt settlement satisfies the two reasons why people opt to consolidate debt. Make sure that you get to know this debt relief program better and compare it with your financial situation. That will help you make a smart decision about what type of debt solution you will use to get out of your credit situation.