Pros and cons to consolidating debt
Debt settlement should only be used by those that already have very poor credit.If not, your credit standing and your credit score will be severely damaged for quite a while.
You can’t borrow your way out of debt in the same way you can’t get out of a hole by digging out the bottom.Your monthly payment on the first loan is $517, and the payment on the second one is $583. The debt consolidation company says they can lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Who wouldn’t want to pay $460 less per month in payments?But they don’t tell you that it will now take you six years to pay off the loan.In other words, the good money habits for staying out of debt and building wealth aren’t there—their behavior hasn’t changed—so it’s extremely likely they will go right back into debt.Debt consolidation seems appealing because, in most cases, there’s a lower interest rate on parts of the debt, and it usually includes a lower payment.Their objective here is to get your lenders so desperate for some sort of payment that they’ll be more open to accepting a settlement deal.
A settlement means that the lender, collection agency, or credit card company agrees to take a significantly lower payoff amount than what you actually owe, wiping your slate clear from the financial obligation.
Debt settlement isn’t without pitfalls and consequences — and it isn’t for everyone.
Debt settlement is, simply put, hiring a debt settlement company to help negotiate lower payoffs on personal loans, collections, and open accounts like credit cards.
Truth: Debt consolidation is dangerous because it only treats the symptom.
Debt consolidation is nothing more than a con because you think you're starting with a clean slate.
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