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Debt Settlement vs Debt Consolidation

by | May 17, 2022

Debt settlement vs Debt Consolidation

Debt Settlement: Cheapest Way to Get Out of Debt?

What is Debt Settlement

Debt settlement is an alternative to bankruptcy for reducing or eliminating debt. It is also known as debt arbitration, debt negotiation or credit settlement. In this approach to debt reduction, the debtor and creditor agree on a reduced balance that will be regarded as payment in full. The creditor accepts less than what is owed and writes off any remaining balance of the account.

The process involves negotiations with each individual creditor so it can take several months before your debts are settled if you have many different loans or accounts (such as credit cards).

Why do people choose debt settlement?

You’re likely to be choosing debt settlement for one of three reasons:

  • You want to get out of debt as quickly and cheaply as possible.
  • If You want to avoid bankruptcy.
  • You don’t know what else to do but can’t afford to pay off your debts any other way.

How does debt settlement work?

  • You stop paying your creditors.
  • The money you don’t pay to your creditors is deposited into a savings account (paid for by the debt settlement company).
  • As the amount in your savings account accumulates, you can make lump sum payments to your creditors.
  • Each creditor will then declare the debt paid in full and close their file on that particular customer’s account.

What are the pros and cons of using a debt settlement company?

Debt settlement can be a good option for you if:

  • You are overwhelmed with debt and cannot manage it on your own.
  • If You have a steady income and stable employment history.
  • You have a lump sum of money to pay off your creditors.

How to avoid scams and know if the debt settlement company is legitimate?

To ensure your debt settlement company is legitimate, there are a few things to consider:

  • Check that the company is registered with the Department of Trade and Industry (DTI) or Financial Services Board (FSB). The DTI regulates all financial services companies operating in South Africa; if your company isn’t listed on their website, you should question whether they are legitimate. The FSB regulates all payment service providers (PSPs) in South Africa including credit card issuers and prepaid payment instruments such as debit cards, gift cards and e-money. If your debt settlement company cannot be found on either registry, it may not be trustworthy.
  • Review their website for consumer reviews and check against any complaints reported by consumers with either body mentioned above. While these organizations have an online directory of registered members which can be used to determine whether the company is listed as an authorized provider of debt solutions, it does not guarantee that all members are fully licensed or accredited by these bodies nor do they necessarily reflect fraudulent activity conducted by entities claiming affiliation with them through membership status only!

Should you use a debt settlement company or make settlements with creditors on your own?

Before you decide to use a debt settlement company, you should consider the following:

  • Credit counseling

If you want to settle your debts on your own, it’s important to first get some professional advice from a reputable credit counseling agency. They can help you determine if this option is right for you and will also make sure that any negotiations with creditors comply with regulations.

All credit counseling agencies are required by law to provide free educational materials about how bankruptcy works and what it means in terms of your future financial situation.

Credit counselors work on a commission basis, so they may recommend filing for Chapter 7 or 13 bankruptcy when they know their clients aren’t eligible because their income level exceeds Federal guidelines or their debt load is too large overall (in which case they would have higher than average monthly payments).

A reputable agency should always recommend the best course of action based on your individual needs and goals without trying push its own agenda first or foremost at every turn like some companies do with their employees’ livelihoods at stake every day of every week throughout each year since opening day back when records began being kept around 500 BC Babylonian times during Hammurabi’s reign over Babylon during his reign as King starting around 1792 BC until roughly 1652 BC when he was killed by another king named Rim-Sin

What happens when you stop paying your creditors?

When you stop making payments, your creditors have the right to contact you and ask why. They may call or write, demanding that you resume payments immediately or risk having their accounts sent to collections. If a creditor does pursue collection efforts, it can be very unpleasant for both parties involved. You will likely start receiving phone calls and letters from debt collectors about your delinquent accounts that can feel intimidating and threatening.

If the situation isn’t resolved quickly and favorably for the creditor (meaning they get paid), they may take more extreme measures to get their money back from you such as suing in court for damages related to your failure to pay them (for example, late fees). Creditors also have the right under federal law—and many state laws—to report negative information about your creditworthiness with credit reporting agencies.

Are there any cheaper or better options than debt settlement to get out of debt?

Debt settlement is not a good option for everyone. If you have the time and resources to pay off your debts over the long term, that may be your best option. But if you’re in a financial crisis and need help getting out of debt faster than what it would take by making payments on your own, then debt settlement can be a great way of doing so. It’s important to note that while this process will allow you to skip some of your payments and get out of debt sooner, It might also mean missing out on any interest payments as part of the deal.

If it sounds like something that might work for you then let’s go over how it works!

Debt Settlement or Debt Consolidation

Debt consolidation is a loan that is paid to your creditors and then the creditor pays off your debt. While Debt settlement is a negotiation with your creditors to get them to accept less than what you owe them.

Consolidating debt can have a positive impact on your credit rating and improve it. Whereas debt settlement can have a negative impact on your credit rating. This will depend on how much of the outstanding balance you’re able to pay off in full as well as other factors such as if there are any late payments on past accounts that need to be rectified before they get deleted from your credit file altogether.

It’s important that you understand what each option means before making any decisions about resolving your debts

Debt settlement usually makes sense only for consumers who have tried every other option. If you decide to settle your debts, be sure to read the fine print of any agreement.

If you can’t handle the payments on your loans and other debts and are considering debt settlement. It’s important to know what you’re getting into. The process is not easy or simple. You’ll need to put aside some money for monthly settlements with each creditor, and if you leave the program early because of poor results, you could owe more than your original debt total. Contact Real Estate Assist for help with Property debt and arrears and for Real Estate solutions.

Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal or property advice. We do not take responsibility for any actions taken based on the information provided in this blog. It is always recommended to seek professional advice for your specific legal or property needs. Contact us (Real Estate Assist) if you seek such advice and we will appoint a professional from our team to be of assistance.

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Please Note: We are unable to provide assistance if you do not own a property. Real Estate Assist specializes in helping property owners who are experiencing challenges with their mortgage payments. If you own a property and require support with debt consolidation without going through the debt review process, our team is here to help you explore options to unlock the equity in your home for necessary family matters.

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