Bankruptcy is often the last thing many people want to consider. When your debt has become overwhelming, you may have the alternatives of debt consolidation or debt settlement. Exploring the pros and cons of each of these options may help with the decision-making process. However, if the debt is leading to bankruptcy, then do not hesitate to ask a Chattanooga bankruptcy lawyer about the next steps.
How Debt Settlement and Consolidation Works
Many people avoid bankruptcy for a reason. There are a variety of negative effects of bankruptcy on credit scores. A healthy credit score is what gives you better financial deals, lower interest rates, insurance, and access to borrowing money through loans and mortgages.
The two alternatives to solving debt other than bankruptcy are debt settlement and debt consolidation. Debt settlement starts with setting up an account with a debt settlement company where you will be assigned a representative.
First, you will be asked to make monthly payments to the debt settlement company for a certain period of time. Your representative will use the lump sum from these monthly payments to negotiate a lower total debt payment with each of your lenders. Then you will be able to make a lump-sum payment all at once for a lower amount than the original debt amount you owed.
Debt consolidation requires you to look for a new credit card or loan. This new credit card or loan will combine all the separate debts you owe into one main debt. As a result, you will have one monthly payment with the potential for an overall lower interest rate.
Debt Settlement Versus Debt Consolidation
You might be wondering whether debt settlement or debt consolidation would be better for you. The reality is that each financial situation is unique, and not every financial solution will work for everyone. Weighing the pros and cons of debt consolidation and debt settlement may help you decide.
The pros of debt consolidation are making debt management much simpler with just one monthly payment and one interest rate. However, there is no guarantee that the interest rate will be lower. Other cons of debt consolidation include borrowing fees, paying creditors to manage your debt, and late fees.
The pros of debt settlement are paying off all the debt at once with a lump sum lower than the original debt you owed. Problems arise when your creditor rejects the lump-sum offer after you have already paid into the lump sum for several months. Some debt settlement companies require you to pay into the lump-sum offer for years.
You also have to be wary of debt settlement scams. Not all debt settlement companies can be trusted. This means you will have to do extensive research to find out if the debt settlement company you are considering working with is reliable.
Contact Tom Bible Law Today
You may not have to deal with debt alone. Feel free to call us at Tom Bible Law today at (423) 424-3116 for a consultation about your financial dilemma. Our legal team of Tennessee bankruptcy attorneys might be able to help you escape your financial situation through bankruptcy. We serve clients in the Tennessee cities of Chattanooga, Kingsport, and Tullahoma.