What is the Difference Between Debt Consolidation and Debt Settlement?

Debt consolidation and debt settlement are two options that are available to those having difficulty with mounting debts. While both options can potentially help individuals manage and pay off their debt, they work in different ways and have different implications. It is important for clients to explore and understand the differences between these options with the help of a Florida debt attorney from Sharmin & Sharmin.

Debt Consolidation

Debt consolidation typically involves combining multiple debts from different creditors into one debt that may have a lower interest rate and more manageable terms. Debt consolidation may allow someone who owes a great deal of money to save money in the short term and pay off their debt faster in the long term.

Debt consolidation can be done through a number of different avenues: 

• Balance-transfer credit cards – Balance-transfer credit cards involve moving multiple debts onto a single credit card with a lower interest rate or better terms.
• Debt consolidation loans – Debt consolidation loans are specifically designed to pay off a number of different types of debts.
• Personal loans – This process typically concerns the removal of a separate, single, and unique loan from the bank or other creditor, using the money to pay off the debts, and paying the personal loan off from a more advantageous financial position.
• Home equity loans – With a home equity loan, individuals are able to borrow money against the equity of a home to pay off different debts.

Debt Settlement

Debt settlement involves purposely not paying a creditor for a period of time – usually two or three years – and then trying to pay off the debt with a much lower lump-sum amount. Debt settlement is essentially a back-door way for individuals to pay off their debt for less than what they originally owed, depending on the depreciating nature of their current debts. The debtor may try to negotiate the settlement themselves or hire a company to help, but this method can be risky due to backlash from the creditor or debt collection agencies themselves.

Which Should I Choose?

There are a myriad of factors that go into choosing debt consolidation or debt settlement. Choosing a specific financial strategy should always be done under the consultation of an attorney. However, some of the more specific factors that lawyers take into account include: 

• One’s current financial standings 
• How much debt is owed in total
• The reasonable timelines for paying off the debts
• Current credit scores, including FICO and VantageScores 
• Delinquency on current debts

Sharmin & Sharmin Is Dedicated to Your Success

Sharmin & Sharmin employs some of the top Florida debt defense attorneys in the state of Florida. Our lawyers understand the complex and intricate nuances of debt consolidation and debt settlement, giving you and your family the peace of mind you need to carry out your financial goals. To reach out to one of our attorneys, give us a call at 1-844-Sharmin or navigate to our online messaging system, where a representative will assist you.