People often debate what kind of consolidation services they should use.
There are advantages and disadvantages to credit card debt consolidation and debt settlement.
Both approaches may achieve the same thing, financial freedom their approach is vastly different.
While debt settlement may get you out of debt quickly, debt consolidation is often preferred.
Both methods of debt elimination can have varying effects upon your credit report.
Credit card consolidation has little to no affect on your credit score.
Since debt consolidation pays the creditors off in full, they will not make a negative entry, against your credit.
Debt settlement has a negative impact on your credit score.
Debt settlement hurts your credit because for a time the creditors are not getting payment.
They are paid once a settlement is reached and an amount is paid into an account to pay off the debts.
The credit rating issue favors the use of credit card debt consolidation, over debt settlement.
The risk of fraud exists in either method.
Debt settlement is the most common type of debt relief that has fraud involved.
The reason for this is simply how it is marketed.
Agencies may charge fees, or may pass on late payments to you.
They may take a percentage of each payment, making it take longer than anticipated to pay off the debt.
In some cases, they charge a fee to enter into negotiation, then not follow through.
On top of that, they may not provide a refund.
Debt consolidation is less fraudulent because it normally operates with a collateral base, such as property.
The equity is used to pay the debt off, and then payments at a lower interest rate are made.
You should still be cautious and make sure that you understand the terms of the loan.
There are also potential tax advantages of using debt consolidation.
If the equity being used to consolidate the loan is from a home, the interest may be tax deductable.
Debt consolidation may take longer to pay off, but the savings on taxes could make it well worth it.
Either option will get you out of debt, but consolidation is typically the favored method.