Should you Consolidate or Settle your Debts? | McCarthy Law
January 25, 2017

Should you Consolidate or Settle your Debts?

This time of year, many people are examining their finances and finding that they have fallen another year deeper in debt. For many people, examining the various debt relief options can be a confusing process. Two of the more common debt relief options are debt consolidation and debt settlement.

The focus of debt consolidation and debt settlement are different. Debt consolidation focuses on reducing the number of payments you have to make in a given month. Debt settlement focuses on reducing the amount you owe to your creditors, while also allowing you to make just one monthly payment.

What is Debt Consolidation?

Debt consolidation will typically involve a consolidation loan. This loan provides you with the money necessary to pay off your other accounts. Then, instead of making payments on all of your various accounts, you simply make payments on the debt consolidation loan. Making a single payment is the biggest benefit for most people who choose to consolidate their debts.

The downside to debt consolidation is that it involves going further into debt. Because you will be taking out a new loan, you will be paying origination fees and other expenses on the new consolidation loan. This makes your problem of being in debt worse. Another issue with debt consolidation is that there is no guaranty that your monthly payments will be lower. Oftentimes, by the time a person gets their debt consolidation loan, the payment is higher than what they were paying before consolidating.

Finally, many consolidation companies will only make a consolidation loan to you if you are willing to put up collateral. That means that in exchange for the ability to make one monthly payment, you would have to give up a security interest in your house, car, retirement funds, or insurance policy.

What is Debt Settlement?

Debt settlement is a process in which you or a debt settlement attorney negotiates directly with your creditors to reduce how much you owe. While you can negotiate some settlements on your own, there is great value to working with an experienced debt settlement attorney. The value comes from the debt settlement attorney knowing what makes a good or bad settlement deal.

When properly done debt settlement can save you on average up to 60% of the balance of your debt. This is because you are directly reducing the amount you owe to each creditor. Even after paying for the assistance of an experienced debt settlement attorney, you still stand to reduce the amount you owe by 40% or more.

Which is better?

Because debt settlement does not replace your current debts with additional debt like debt consolidation, debt settlement allows you to get out of debt faster. For many people this is a very important factor to consider. While debt consolidation can actually extend the length of time you will be paying off your debts, most debt settlement plans can be completed in three years or less.

The biggest benefit that debt consolidation has is that if gives you the ease of simply making one monthly payment. While settling your debts on your own does not provide you with one monthly payment, the experienced debt attorneys at McCarthy Law can formulate a settlement plan that will allow you to make one monthly payment. When you consider the ability to make one monthly payment and have your debts reduced by significant amounts, it is clear that debt settlement is a superior choice.

If you would like to speak to an experienced debt attorney, give us a call at McCarthy Law. We can talk through your situation with you and help you determine which of the debt relief options you have available to you is the best option for you.

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