If you are living in Tennessee and are in debt, you may have been asking yourself what the difference is between debt settlement and debt consolidation TN. You might also be wondering which one is better. The answers to those questions will depend on your situation.
What Is Debt Settlement?
Debt settlement is when a company’s agent enters into negotiations with your creditors on your behalf. The agent’s job will be to re-negotiate the terms of your debts. For example, if you are paying a high interest rate, the agent will arrange to have the rate lowered so that you can pay less in interest. Your monthly payments will be lower as a result.
When you contact a settlement agency, your agent will tell you to stop making your monthly payments on your debts if you haven’t already done so. The reason is because creditors will not ordinarily negotiate a settlement with you if your accounts are in good standing. Instead of paying your creditors, you will make payments to your settlement company who will put the money in an account for a future settlement for your creditors. This is advantageous for you because the settlement amount will be less than you currently owe your creditors. The company will charge you a fee for this service as they work on your behalf.
The Downside of Debt Settlement TN
After you stop making your monthly payments, your accounts will be delinquent, and you will have several late payments. These late payments will be reported to the credit bureaus, and your credit scores may go down. Any late fees and penalties that are applied to your accounts may also be added to your debts. In addition to that, after your accounts are 180 days past due, your creditors usually become very aggressive with their collection methods.
After your creditors increase their collection efforts, you will begin to receive unwanted phone calls. The worst case scenario would be that your creditors would decide to sue you. In the event that your creditors win their lawsuits, your wages may be garnished, or they could put a lien on your home.
Debt settlement is an option that you can consider, but it is for people who are in truly desperate situations.
What Is Debt Consolidation TN?
Debt consolidation TN combines all of your unsecured debts into one. Unsecured debts include credit cards, payday loans, personal loans, utility bills and medical bills. They are any debts that are not secured by an asset.
You will receive a loan that will pay all of your bills in full, so you will only have one monthly payment to make. A debt consolidation loan will also have a lower interest rate than you are paying on all of your debts combined. As it is now, you may have several high interest rates on your many debts that are making it impossible for you to get out of debt. With a debt consolidation loan, this will be a thing of the past.
An Example of Debt Consolidation
Your unsecured debts amount to $30,000. One of these debts is a loan that you received for $10,000. The interest rate is 12 percent. You also have a $20,000 loan with an interest rate of 10 percent. You make monthly payments of $517 for your first loan and $583 for your second loan. In all, you are paying $1,100 for these two loans each month.
When you hire a debt consolidation company, your agent says that he can lower your monthly payment to $640. Your interest rate would be 9 percent. Your agent negotiates with your creditors for the new interest rate and “consolidates” the loans into one. In the end, you will be paying $460 less every month than you have been paying.
The Downside of Debt Consolidation
Debt consolidation TN may seem like a great deal to you, but you do have to remember that there are also drawbacks. For example, the terms on your new loan will be longer than your current terms. If you do not consolidate, you would be finished paying your second loan off in four years in the example. After consolidation, it will take six years to pay your loan in full. Because the terms of your loan will be longer, you will actually be paying more in interest over the life of the loan.
Although there is a drawback to consolidation, it may be acceptable to you because it is too difficult for you to make your higher payments every month. In that case, debt consolidation TN would be a benefit to you.
Who Qualifies for Debt Settlement?
Good candidates for debt settlement are those who have several unsecured debts. You must also consider whether or not you are capable of saving at least half of the amount you owe in 18 months. If you believe that you will be able to save that much money, debt settlement is an option for you.
Who Qualifies for Debt Consolidation
A good candidate for debt consolidation is someone who is spending more money than she makes every month. If your credit card balances are not going down even though you are making monthly payments, you have debts on more than five credit cards and you can only afford to pay the monthly minimums, you are a candidate.
The average Tennessee resident has a 679 credit score, which is below the average good score of 750. If you wish to increase your credit score so that you can enjoy a better financial future, it’s important to seek advice from a trusted debt counselor to learn more about debt settlement or debt consolidation.