Many people who are struggling with debt get confused over what to do - and even more confused about which route to take.
California (OPENPRESS) March 20, 2012 - Many people who are struggling with debt get confused over what to do - and even more confused about which route to take. They often get even more confused about debt negotiation and debt consolidation, thinking the two entities are one and the same.
Simply put, debt consolidation is when you choose to take out a loan that will cover all of your bills at a lower interest rate then use that money to pay off all your debt. Although you still have debt, the lower interest rate will save you money in the long run.
If that isn't a favorable solution, you may want to consider debt negotiation. Some people choose to negotiate their debt on their own, while others hire an outside party to do it for them. Either way, it works the same - you negotiate with your creditors to get them to reduce your outstanding debt balance in return for payment in full.
Debt negotiation is applicable to unsecured credit cards, medical bills, personal loans, store credit cards and bounced checks. Student loans may also be negotiated if the loans are not insured by the federal government.
Confused as to when you should try to implement a debt negotiation? Here are the situations that should prompt you to work toward debt negotiation.
• You have been unable to make your payments for the past three months.
• You have lost your job or faced a medical emergency that forces you into being unable to pay your debts.
• Creditors have threatened to sue you for payment.
• Your debt has been turned over to collections agents who are harassing you.
• Debt consolidation is not something that will work for you.
• Bankruptcy is the only seemingly feasible option.
Debt negotiation is something that can truly benefit you. It can help reduce your outstanding balance to make it easier to pay off your bills, and do so faster, as well as lowering your monthly payment. There are no extra charges like late payment or over the limit charges. Collection agencies will also cease to harass you, and if you have the creditor report to your credit that your debt is "paid as agreed" or "settled," there will be no negative impact on your credit history.
Bear in mind that your creditors won't even talk about negotiating your debt until you are behind at least three months. And you should also keep in mind that negotiating means that you'll pay the agreed-upon amount in full. This may impact your decision.
But whatever you decide, it's important to note that once you've settled your bills, you will see a marked improvement in your credit score.
