Debt Consolidation and Other Options
A Credit Article Contributed by Girish Katyal
Debt Consolidation and Other Options
Debt consolidation is required by those who want to consolidate there debts in one single debt and paying only a single monthly amount to pay it off. While debt consolidation is the best option for anyone who just can't keep up with monthly payments due to various creditors and looking for a plan to combine all their debts into one and then pays one payment in a month. Usually the services of a debt consolidation company are taken to reach such an arrangement.
But there are some of the other options for those who can't even pay the minimum monthly payment required to sustain the debt consolidation plan and are discussed below.
Debt Consolidation and Debt Settlement
Debt settlement which is also commonly known as debt elimination or debt reduction or debt negotiation is regarded as a special service and is usually presented to people who unable to sustain debt consolidation program, can't make even the lowest amount of payment of a debt consolidation program, or for those who have large outstanding debts on which they haven't paid in the past few months.
The debt negotiation or settlement service tries to settle all the outstanding debts on behalf of there clients. After you opt for a debt reduction or settlement services you are not required to make monthly payments or any payments to your creditors. The payments are now made to debt settlement service and are deposited in a holding account.
As you are paying money to your debt settlement service or depositing it into a holding account either in your or there name, you are not required to reply to your creditors calls. As your money is being accumulated, the debt settlement service handles all the communications with your creditors and keeps negotiating with them to reach a settlement to which all the parties concerned agree.
Although you may get away by paying a much lower amount of money than you owe them, your credibility will suffer a huge blow and most of your creditors may initiate legal proceedings against you to get there money back from you. You will end up with a bad credit rating and may be worse than that. Debt settlement will create a black mark on your credit history which you might not be able to remove.
Debt Consolidation and Bankruptcy
Bankruptcy is filled by the people who are unable to pay their debts anymore. Debt consolidation can work for only those individuals who are making some considerable amount of money but are unable to keep up with the minimum monthly payments due to their creditors and need a consolidation plan to help them out.
In debt consolidation plan the creditors are paid the whole principal amount which the debtor took from them initially and the relaxation sought is only in regard of interests, fees and penalties. In bankruptcy it is declared that you are unable to pay anything. In bankruptcy you may loose your assets but in debt consolidation that is not the case.
If you declare bankruptcy then it will be nearly impossible for you to get a credit in future while with debt consolidation it will be easy for you to get a loan or a credit even from the same creditors. Bankruptcy should be considered only if you have tried all plans or methods or ways available and they have failed.
