Debt Consolidation vs Debt Reduction
On the surface, debt consolidation and debt reduction sound like the same thing. Both promise helpful solutions to get people debt free, and both promise to make the process of getting cleared from debt cheaper on a monthly basis. To the unfamiliar customer, the differences between the two types of debt reduction services may seem negligible.
But make no mistake: Debt consolidation and debt reduction are two entirely different services. A debt consolidation is essentially a loan that is taken out to pay off your outstanding debts. Typically, this type of service will use some sort of personal collateral in order to set things up, like your home. While the use of collateral may be intimidating, the benefits of loan consolidation include a lower interest rate on your debt, a lower monthly payment, and an increase in your credit score since it will appear that your debts will be paid off.
On the other hand, a debt reduction relies on a company negotiating with your creditors to bring your debt down by 40 to 60 percent. This company will then deal with your creditors, provided that you pay the company the reduced monthly amount. There are tax implications that arise from this process, as the IRS deems this reduction as a gift that needs to be reported. Plus, your credit score can be impacted negatively, since it can still take up to four months for a company to fully start taking care of your debt.
So which service is better? That’s a question that you need to decide for yourself, and only after careful consideration. Debt consolidation and debt reduction both have pros and cons, but both aim for the common good of getting you out of financial trouble. In the grand scheme of things, that makes both services worthy options to weigh.
But make no mistake: Debt consolidation and debt reduction are two entirely different services. A debt consolidation is essentially a loan that is taken out to pay off your outstanding debts. Typically, this type of service will use some sort of personal collateral in order to set things up, like your home. While the use of collateral may be intimidating, the benefits of loan consolidation include a lower interest rate on your debt, a lower monthly payment, and an increase in your credit score since it will appear that your debts will be paid off.
On the other hand, a debt reduction relies on a company negotiating with your creditors to bring your debt down by 40 to 60 percent. This company will then deal with your creditors, provided that you pay the company the reduced monthly amount. There are tax implications that arise from this process, as the IRS deems this reduction as a gift that needs to be reported. Plus, your credit score can be impacted negatively, since it can still take up to four months for a company to fully start taking care of your debt.
So which service is better? That’s a question that you need to decide for yourself, and only after careful consideration. Debt consolidation and debt reduction both have pros and cons, but both aim for the common good of getting you out of financial trouble. In the grand scheme of things, that makes both services worthy options to weigh.