Almost 75% of Americans today are 3 paychecks or less from being homeless. As a nation, we have built up a staggering debt load, and a bad habit of buying things on credit and paying them off over time. Although this is great for major purchases such as a house or a car, you start to get into trouble if you get in the habit of putting EVERYTHING on your credit cards. Miss one monthly payment, or pay it late, and you'll not only get hammered with a late fee, but you'll almost certainly find your interest rates skyrocketing as well. If you encounter an unexpected expense (such as medical bills), or if you should find yourself jobless, then you might not even have the money to meet the minimum monthly payments. Pretty soon, the situation has spiraled out of control.
So what do you do when you run into debt problems and can't see your way back out? The first thing you probably notice is that advertisements are everywhere, on TV, on the radio, in print media, on the web, in your email inbox, all of them offering you the best solution to your debt problem. They all sound great, so how do you know which one to choose?
Let's compare 2 of the debt solutions offered: Debt settlement and debt consolidation.
DEBT CONSOLIDATION
Debt consolidation is a great way to "organize" your debt, and you can sometimes get reduced interest rates as well. The concept is simple: Take out a single loan that is large enough to cover all of your unsecured debts (credit cards, gas cards, retail store cards, etc). Pay them all off. You are then left with only one payment to make, in a consistent amount, at the same time each month. It's much easier to budget for, and even a bad loan can usually offer a better interest rate than a credit card that has a bad payment history. However, bear in mind that you are exchanging many small debts for one large one. You still owe just as much money. In addition, if your debts are extremely bad and your credit has taken a hit from it, you may have a lot of trouble getting that new loan.
DEBT SETTLEMENT
Debt settlement is a negotiation process, whereby the debt settlement company negotiates with your creditors on your behalf, to convince them to lower the total amount of money that you owe. Once they reach a settlement, you pay it off IN FULL, and that debt is cleared; you owe no more money. This can take several months to accomplish, and the creditors may still try to harass you, although the debt settlement company should be fielding all such communications. The catch here is that you will have to maintain a strict budget, and make monthly payments to the debt settlement company, so that once a settlement is reached, they have enough money in your account to pay off that negotiated amount.
Of the two, debt settlement is definitely the fastest debt relief method, clearing debts in under 3 years and in as little as 1 year in some cases. You also save a substantial amount of money, by eliminating all late fees and interest payments. However, you need to have the self-discipline to stick with the program, and to work with a debt settlement company that you can trust to look out for your interests and deal honestly with you.
