Consumers are easily confused about how debt consolidation works because the industry uses interchangeable terms.
Both approaches work very differently and have unique pros and cons. Explore each alternative to decide which is best for your needs before taking the plunge.
Settlement/Relief
A debt settlement program means that you consolidate your payments to multiple creditors in an effort to negotiate relief. If successful, the creditors agree to forgive a portion of what you owe in exchange for immediate partial payment.
In order to qualify for a settlement program, you must owe more than $10,000 in unsecured debt (credit cards, medical debt, personal loans) and have enough income to fund an escrow account with 1/3 of the amount owed.
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Consolidation Loans
A debt consolidation loan means that one new lender pays off what you owe to multiple old creditors. You then repay the new lender under different terms (interest rate & the number of payments).
In order to qualify for a consolidation loan, you must have a good credit score and enough income to handle the combined monthly payment to the new lender (after meeting your other living expenses such as housing and transportation).
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Debt Consolidation Subtopics
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Articles on this Topic
Florida Debt Collection Laws | Statute of Limitations
Many new parents in Florida having children experience a need for financial assistance with unpaid medical bills. Labor and delivery in a hospital are very expensive.
The statute of limitations on medical debt does not provide much relief. Families still owe the money. A collection agency simply loses the right to sue in court.
How to Get Out of Debt with No Money and Bad Credit
Personal loans can help borrowers consolidate high-interest debt into a more affordable, lower monthly payment, and stabilize finances – if you can find a lender willing to approve your application.
People with bad credit find options very limited. Investors shy away from lending money to candidates with poor qualifications, and difficult demands.
Unsecured Debt Consolidation Loan Calculator
Online debt consolidation loan information often promises things the source cannot deliver. Combining your obligations into one convenient lower monthly payment sounds very appealing.
Unfortunately, consumers most in need of this type of relief rarely qualify. The large amounts of unpaid balances push down their credit score and boost their debt-to-income ratio. Neither is good.
Paying Off Debt with Low-Income (Consolidation, Settlement)
Reliable debt consolidation information is very hard to find. Low-income earners may find it especially difficult to identify trustworthy lenders and resources.
Borrowing money requires a steady job and reliable source of income sufficient to cover your new obligations, along with your everyday living expenses. You may want to explore other options.
Paying Off Collection Accounts via Debt Consolidation
Find the critical information you need to know before applying for a debt consolidation loan to retire any collections accounts. It may be difficult to find a willing lender, and it may not make the most sense.
Explore the advantages and disadvantages of settlement and management programs before completing your application.
Government Debt Consolidation, Relief, & Forgiveness
The government does not offer or approve debt consolidation loans, relief options, or forgiveness programs for private obligations in a direct fashion. However – federal and state agencies enact laws that regulate related activities.
People who owe large sums on their credit card, mortgage, or hospital bills will benefit from knowing the consumer protection rights that they have.
Payday Loan Consolidation | Debt Relief vs Personal Loan
Many consumers consider applying for an unsecured personal loan online to consolidate deferred deposit transactions. Doing so may lower projected annual interest rates, and temporarily relieve payment pressures from these expensive short-term contracts.
Be careful! You are trading one problem for another.