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.

How does debt consolidation differ?

Debt settlement can be tricky. You should have the money to clear your accounts and not using it all to clear your debts may not sit well with your creditors. For some borrowers, giving all their windfall profit away is not an option.

Debt consolidation, instead, gives you a lump sum which will let you repay your creditors in full, without negotiations or putting yourself at the mercy of your current lenders.

Clearing your accounts with your loan lump sum, you can focus on paying just one provider – the debt consolidation loan lender. You will have much greater control over your finances, with one monthly payment and one interest rate.

Consolidation or settlement – which is better?

That depends on your situation, yet the debt consolidation loan makes more sense considering most circumstances. You do not have to agree terms and you can decide what to do with your lump sum.

You will have to repay what you owe in full, but you may have smaller monthly repayments and you might not have to dip into your lump sum.

Debt consolidation loan applications are quick and easy. See if you qualify now.

Contact us today

We’d love to help you move towards a debt-free future. Our friendly team will offer no-obligation advice and answer any questions you might have about joint debt consolidation loans or debt consolidation loans with CCJ – just call us today.

If you are facing serious money issues the money advice service offers free impartial advice

Why Consolidate all your Debts?

  • It will improve your personal budget
    You can put all your borrowing into one easy-to-manage loan, which means your monthly payments are easier to control.
  • Less repayments
    A loan could even save you money each month, especially if the loan interest rate is smaller than the total interest rate of all your debts.
  • Better credit rating
    The ease of repaying a loan means that you can prove that you are a responsible borrower, which will have a positive effect on your future credit score.