A debt settlement loan, often based on your home equity, consolidates your loans under a new creditor. For example, say you owe $20,000 in debt, spread across four credit cards with four different interest rates. The new creditor will pay all four of your credit cards, and you now owe the new creditor the $20,000 at one interest rate.
Debt settlement loans can make things a lot easier, since you have only one company to deal with and one payment to make. You will also be relieved of the constant telephone calls from your creditors. But debt settlement loans are not the only option. When is a debt settlement loan the best choice? What are the advantages?
-Fewer creditors
If you have a lot of different creditors, a settlement loan may be of benefit. After all, it is much more expensive to pay multiple interest rates, even if the interest rate on your loan is higher than some of your creditors’ rates.
-Avoid bankruptcy
If you find yourself in a debt situation where bankruptcy seems like the only option, a debt settlement loan may help you avoid bankruptcy. As noted below, a debt settlement loan does not have a negative effect on your credit rating like bankruptcy does.
-Build better credit history
When you receive a debt settlement loan, you have the opportunity to recover your credit rating. If you make your payments on time and do not accumulate any additional credit card (or other) debt, your credit history will be positive and your rating will improve.
-Save money
If you are having debt trouble, you probably do not have a lot of available cash. Saving money is a top priority for those struggling with debt, and a settlement loan will save you money. With bankruptcy, you have attorney’s fees to pay and a 7-10 year period before you can leave it behind. A settlement loan may take that long to pay off, but it does not have the stigma attached to it that bankruptcy does, nor does it include other fees.
-Peace of mind
Sometimes, the stress of harassment by your creditors is tougher to deal with than the debt itself. A settlement loan is one way to reduce the stress of debt.
If you have questions about settlement loans, there are reputable debt counselors who can make you aware of your options and assist you.
