How to Take Care of Debts: Choosing Between Settlement vs Consolidation

Debt can become a tough problem to solve. If you’re not careful, it can snowball out of control, leading to the need for debt management solutions.

There are a couple of main debt solutions available to you: debt consolidation and debt settlement. In this blog, we’ll explore these two options and help guide you on which one you should choose.

What is a Debt Consolidation?

Debt consolidation consists of taking out a new loan that allows you to pay off all your other debts. That combines your debts into one, which means you have just a single monthly payment and potentially lower interest rates. This method makes it much easier to stay on top of your payments.

A lender may offer you the amount of money required to pay off your debts, or they may even pay off your creditors directly.

What is a Debt Settlement?

Meanwhile, debt settlement, also called debt relief, is a method of negotiating with your creditors to convince them to forgive portions of your debt. You can either do it yourself or work with a licensed insolvency trustee to negotiate on your behalf.

How to Decide

Choosing between the two methods can be a tough decision. Each one has different benefits and drawbacks, and which route you choose can depend on various factors.

Debt Settlement

Debt settlement can sound more appealing – after all, you’re paying less money – but it can also be much more risky. During the negotiation process, you stop making payments on your debts, instead putting that money into a savings account until you have enough to cover the sum agreed upon.

However, during that process, your creditors will likely continue to charge you interest and late fees, plus they’ll report your missed payments to the credit bureaus. You will still likely save money, but your credit score may suffer long-lasting damage. Also, the more creditors you have, the more negotiating you need to do. There is also the possibility that they won’t be open to negotiation.

Debt Consolidation

Debt consolidation can be a good strategy for when you have multiple debts. If you have good or excellent credit, you can likely qualify for lower interest than your other debts, making payment much faster. It doesn’t reduce the amount you owe but restructures it. You might be able to get out of debt faster thanks to lower interest rates and streamlined payments.

It usually requires good credit, and it doesn’t eliminate your debt at all, which may mean other routes may be preferable depending on your financial situation.

Ultimately, you should consult with a licensed insolvency trustee near you to help you determine which debt solution is best for you.

D & A MacLeod Company is a Licensed Insolvency Trustee

At D. & A. MacLeod Company, we want to help you get out of debt. Our expert licensed insolvency trustees have helped countless residents across Eastern Ontario become debt-free through various debt solutions.

Let us help you find a new beginning – contact us today for a consultation. We look forward to assisting you!