Debt Settlement Vs. Debt Consolidation
What is the difference between Debt Settlement and Debt Consolidation? They both need help to clear their debt, right? How are these companies helping the consumers?
Debt Settlement occurs when a creditor is agreeing to settle a debt for a dollar amount that is lower than the initial total amount owed. It is an agreement that will reduced the actual payoff amount. For the most part consumers will pay the debt settlement companies an amount that they can afford. The debt settlement companies saves the debtors money until they have reached an amount that they can settle their unsecured debt with the creditors.
Debt Consolidation means taking out one loan to payoff several other loans and or accounts. The borrower may then have one lower monthly payment that extends over a period of time verus several seperate monthly payments. The loan taken out is normally secured on property, a house or car for example.
Even though both of these companies are slightly different they are also a lot alike. They both work to help the client clear the debt owed, in addition they can only help clients with unsecured debts. Both these companies prefer to work with unsecured debt amounts of 7k and higher.
Unsecured debt is anything that you do not have to put up any material as security for debt. Some examples are:
- credit cards
- medical bills
- unsecured personal loans
- legal bills
Examples of secured debt are:
- mortgage (house payment)
- car payment
- utility bills
So is there much of a difference between the two?