How is debt consolidation considered to be different from debt settlement? Share some reasons for the same
Debt consolidation and debt settlement are two different concepts. Debt consolidation is a process in which you will combine all the loans or debts you have on you into a single consolidate loan. Then, you have to pay the installments of that single loan, and you will repay all other debts with the money of the consolidation loan. Debt settlement is a process in which you will settle the amount of the debt in different ways with your lender. There are basically three types of debt settlements, and it is upto you that which is suitable for you. There are a lot of differences between these processes.
Both of these have different impacts on your debt and the medium used by you to pay it. They will also have some impacts on your credit report, and you should be aware of this thing. Both of these concepts are counted in debt relief services, and you can access them through online platforms as well. Debt consolidation can be helpful sometimes in improving your credit report. This is because when you have only one loan, and you are paying it off in a constant amount, then your record will be corrected automatically. Let’s have a look at these differences.
- Impact on credit score
As we know that debt consolidation combines the amount of debt into a single loan, it is beneficial in improving our credit score. This is because when you will pay the amount of loan on time, your credit score will be improved, and it is easier for us to pay for a single loan rather than paying for a lot of small loans. In the debt settlement, your credit report will not be improved. There are high chances of decreasing your credit score because of the settlement. As when you make any debt settlement, your report will be updated with the word settlement which has a negative impact on your credit score.
The cost here means the interest rate that you have to pay for the debt you have taken. In debt consolidation, you have to take a bigger loan, and the rate of interest is totally dependent on the lender. It varies all the time, and there is no fixed rate. Debt settlement does not charge any kind of interest rate from you, but there is some kind of fees that you have to pay. The fees s also charged by only some countries; all of them do not ask you for the fees.
In the case of debt consolidation, it is beneficial for us in a way that it becomes easy for us to pay a single loan. The repayment becomes more accessible for us as we don’t have to pay a lot of interest and loan amounts as we were doing earlier. A single loan will become the solution for all the repayments. On the other hand, debt settlement decreases the amount of repayment. There is a different kind of settlements which make changes in the principal amount or in the amount of interest. This provides us relief in the repayment method.
To sum up
Both the concepts of debt consolidation and debt settlement are different from each other. They provide us relief in different forms and make the repayment easy for us. It is our personal choice that what kind of relief service is suitable for us. Some of the points of difference between both the concepts have been discussed above, which are Impact on credit score, Cost, and Benefits.