Debt can be overwhelming. However, it doesn’t have to consume your life. With the right planning, dedication, and attitude, your journey to a debt-free life could start today. Here are some tips on how you could help manage your debt today and what your options are.
Know Your Debt
Before diving into your options for tackling your debt, it is important to understand just how much debt you have. We recommend that you make a comprehensive spreadsheet of all your debt amounts that includes details like interest rate, monthly payment amount, and due date. It’s important to be honest with yourself in this phase. Look at your previous spending. What are the areas where you tend to overspend? Resolve to make changes in your budget to put your spending back within your means.
Debt Consolidation vs. Debt Settlement
When it comes to your options for debt relief, there are two strategies that could help you. Debt settlement is useful for reducing the total amount of debt owed, while debt consolidation is useful for reducing the amount of creditors you owe. Depending on your specific situation, one strategy may be better suited to assisting your debt than the other.
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What is Debt Consolidation?
Debt consolidation is an effort to combine debts from several creditors to help lessen the burden of your debt. Typically, users pull out a single loan at a reduced interest rate and lower monthly payment to pay the remaining creditors. This option is typically best suited for consumers trying to keep up with bills from multiple credit cards.
What is Debt Settlement?
Debt settlement is the process of negotiating with creditors in order to settle a debt for less than what is currently owed. This strategy is typically used to settle a substantial debt with a single creditor, but can be used to deal with multiple creditors if needed.
Which Option Is Right For You?
|Debt Consolidation||Debt Settlement|
|How does it work?||Debts from multiple creditors are combined into a single loan with one interest rate.||Debt balances are typically negotiated with a single creditor to lessen the overall amount owed.|
|How does it impact your credit score?||May help improve credit scores if it reduces your credit utilization ratio.||Late and past-due payment history for a settled account could hurt your credit score.|
|What is the cost?||Debt consolidation loan interest rates can vary. Additionally, some lenders may also charge fees||Debt settlement companies typically charge a fee for their services.|
|What are the Pros?||Combining your debt into a single payment could make repayment easier, and you could save money on interest.||You could eliminate some of your debt owed, and ultimately pay less.|
|What are the Cons?||Depending on your loan term, you may end up paying more in the long run in total interest.||Not all creditors are open to settle debt. Additionally, a late payment history can lower your credit score.|