Debt Settlement vs. Debt Consolidation
Alternative Forms of Debt Relief in Long Island
If you are struggling under mounting debt, an experienced Long Island bankruptcy lawyer at Jacoby & Jacoby can discuss your options in regards to debt settlement and debt consolidation. Although both debt consolidation and debt settlement are viable methods for resolving your debt, there are some differences between the two that you should be aware of before you proceed forward.
Debt settlement is done by working with creditors to have your debts reduced. The point of the debt settlement process is to negotiate for a lower amount than what you owe. For example, if you currently owe $10,000, and you reach a debt settlement agreement that reduces your debts by 40 percent, instead of paying the $10,000 you will only be required to repay $6,000, or 60 percent of the $10,000.
It should be mentioned that you will most likely have to pay the reduced amount in full, and will only have a limited amount of time to do so. Once you have made this payment, the creditor will write off your debts and you will no longer owe any money. Although debt settlement will appear on your credit report, it is good option if you want to get rid of your debts quickly but you cannot afford to pay back the full amount.
Debt consolidation is just what it sounds like. All of your debts will be consolidated into one loan. Instead of paying back multiple creditors, the debtor is only responsible for paying back the new larger loan. Debt consolidation is a good option for people who can repay their debts, but just need time to do it. Furthermore, there is no set time limit a debtor has to pay back their loan.
An advantage to debt consolidation is that a bankruptcy will not appear on your creditor report. A disadvantage is that the loan will have an interest rate, so it is important to pay off the loan as soon as possible. Furthermore, if a person defaults on the loan they could face legal action.