Credit card debts can create immense trouble for the consumers. It is has actually created the trouble and the results were just brightly visible during the recession. There are several options which can be harnessed by the consumers to obtain credit card debt resolution. They two most widely used methods are that of loan consolidation and loan settlement (the method of partial elimination of debts). Both these methods help the consumers to move out of their dues without any impact on the credit score at the end of the methods. These two methods are widely different from each other. However, there is one thing common about both. Let us find out these differences as well as the common factor.
The common factor:
Both the methods make use of the threat of bankruptcy to force the creditors to accept the offers made. The threat of bankruptcy plays an instrumental role in these two methods because the creditors are afraid of bankruptcy filing.
The differences:
Firstly, loan settlement relief is about eliminating the dues of the consumers by at least half of the original outstanding. Consolidation of loans on the other hand is about reducing the interest rates on the unsecured loans. Elimination of the principal amount of the money due is never an option here. If something can be eliminated then it is the charges which are applicable like insurance charge, late fee etc.
Secondly, negotiation requires a settlement firm and a professional negotiator to deal with the creditor. The other method requires a a professional consolidation firm and a professional consolidator.
Thirdly, debt settlement relief is a faster method and requires 1-3 years to complete. Reducing the interest rates on the loans on the other hand is a longer process and takes a minimum of 5 years to complete.
Fourthly, in the partial elimination of loans, the consumer needs to make a bulk payment at the end of the program. On the contrary, the programs for reduction in interest rates require a regular monthly repayment with downwardly revised interest rates.
Fifthly, there can be direct tax implication in the method of partial loan elimination and the savings earned from the process can be taxable. This is not the case in the method of reducing the interest rates. There are no tax implications.
Sixthly, the method of debt negotiation requires an overall bundled unsecured debt of $10K or more. A program for consolidating the loans requires the consumers to have multiple credit cards. There is no such lower limit of dues fixed for this method.
Finally, even though faint, there are chances of legal steps being taken by the creditor in case of settlement. There are no such problems in the process of reduction in the interest rates. However, it is always suggested that the consumers must hire attorney based programs in either case.
The common factor:
Both the methods make use of the threat of bankruptcy to force the creditors to accept the offers made. The threat of bankruptcy plays an instrumental role in these two methods because the creditors are afraid of bankruptcy filing.
The differences:
Firstly, loan settlement relief is about eliminating the dues of the consumers by at least half of the original outstanding. Consolidation of loans on the other hand is about reducing the interest rates on the unsecured loans. Elimination of the principal amount of the money due is never an option here. If something can be eliminated then it is the charges which are applicable like insurance charge, late fee etc.
Secondly, negotiation requires a settlement firm and a professional negotiator to deal with the creditor. The other method requires a a professional consolidation firm and a professional consolidator.
Thirdly, debt settlement relief is a faster method and requires 1-3 years to complete. Reducing the interest rates on the loans on the other hand is a longer process and takes a minimum of 5 years to complete.
Fourthly, in the partial elimination of loans, the consumer needs to make a bulk payment at the end of the program. On the contrary, the programs for reduction in interest rates require a regular monthly repayment with downwardly revised interest rates.
Fifthly, there can be direct tax implication in the method of partial loan elimination and the savings earned from the process can be taxable. This is not the case in the method of reducing the interest rates. There are no tax implications.
Sixthly, the method of debt negotiation requires an overall bundled unsecured debt of $10K or more. A program for consolidating the loans requires the consumers to have multiple credit cards. There is no such lower limit of dues fixed for this method.
Finally, even though faint, there are chances of legal steps being taken by the creditor in case of settlement. There are no such problems in the process of reduction in the interest rates. However, it is always suggested that the consumers must hire attorney based programs in either case.
With the new FTC laws recently passed, debt settlement is a legitimate alternative to filing bankruptcy. Creditors are ready to negotiate and now you won't have to pay a fee unless your debts actually settle. Check out the following link to locate legitimate debt relief companies in your state for free help.
