Debt Consolidation or Debt Settlement?
Taking control of your debt is a sensible target, but there are a few ways that you can do this. Two ways of doing this are: Debt settlement and debt consolidation. Both debt settlement and debt consolidation are ways in which you can settle debt with your creditors straight away.
Let us take a look at both options to understand which one would work better for you and your circumstance.
What is debt settlement?
A debt settlement order means that you repay your outstanding debt by making one single payment to your creditors. You will have to contact as many creditors as you have loan agreements with. You will have to request to close the account, negotiating and agreeing the outcome with the lender by yourself.
How does debt settlement work?
Debt settlement is possible when you find yourself with a lump sum of money. This could have been left to you in a will or given to you by family to help you repay your debts. To negotiate a settlement with your creditors, you must ensure that you can demonstrate that you:
- Can’t keep up with your debt repayments and that nothing will change in the future
- Have the lump sum now but might not be able to keep it without dipping into it for essentials
If you can negotiate a settlement with your lender, make sure that you get creditor approval in writing.
To calculate your debt settlement amount so that you can make a reasonable offer, you should work out:
- How much you owe each of your lenders separately
- The total size of your lump sum
- Divide the total size of your lump sum by your debts and work out how much you can afford to pay
Once you have made your offers, your creditors can decide to accept the debt settlement or not. If they don’t accept it, you will have to seek another option.