Debts and problems faced by debtors

Debts are one of the most common problems faced by consumers today. These debts can be of various types including loans, credit card bills, mortgages and various other dues and pending bills. Non payment of these often results in multiple debts which are piled on with high rates of interest. The interest rates make the debt amount very huge and most of the times debtors are unable to pay the same. Multiple debts and delay in payments also results in poor credit scores. There are three main solutions for getting out of these debts. These include debt consolidation, debt settlement and bankruptcy, with bankruptcy being the last option for settling debts.

Debt consolidation loans

A Debt consolidation loan is a new loan which is taken to consolidate all debts. This new loan normally has lower interest rates and requires a single monthly payment to one lender rather than several. This repayment plan in debt consolidation is devised as per the income and financial status of debtors. Hence it can also be paid easily. Credit scores are improved as a result of gradual payments to original creditors and hence all debts of consumers are settled easily.

Debt settlement programs

Debt settlement programs are apt for those debtors who have very high amount of debts or very poor credit scores, due to which debt consolidation loans are limited as an option for debt settlement. With debt settlement programs, professionals negotiate with creditors, for reducing the principal amount of the debts along with interest rates and monthly payments. This makes it easier for the debtor to repay the debts.

Debt consolidation or debt settlement

Both debt consolidation and debt settlement have their advantages and disadvantages. Debt consolidation is the more preferred option as it helps in settling debts through easy payments along with improving credit scores, which is essential for future financial gains. Debt settlement has a negative impact on credit scores. The successes of debt settlement are restricted. Also the charges for debt settlement services are very high and go up to 15% of the actual debt amount. Debt settlement help in settling debts which have a very huge amount but debt consolidation, for huge amounts, are only available to those who have good credit scores. With debt settlement the amount of debt can be reduced but with debt consolidation the amount remains the same only monthly payments are altered. Professional advice should be taken to get the best way out of various debts.