What's the Difference?
For many people the difference between debt consolidation and debt
forgiveness is a very confusing thing. Some think that it is the same thing,
but it really isn’t. In fact, they couldn’t be more dissimilar – but there
are reasons for doing either. Whichever you choose – debt consolidation or
forgiveness – it is a decision that can only be made once you have all of
the facts.
Debt consolidation is a matter of taking all of your bills and putting them
into one debt consolidation loan. Instead of paying all of your smaller
bills each month, they all get lumped into one payment, which is usually
smaller because of the length of time you have to pay it off in, as well as
a lower interest rate. If you get a secured debt consolidation you will be
looking at an even lower interest rate than if you go unsecured.
Debt settlement is different because the companies “forgive” an amount of
your debt so that you only have to pay less than what you owe. Let’s say you
owe $3,000, but through a debt settlement or forgiveness company you only
owe $1,000. This means that you will not pay the final $2,000 and you are
free and clear. That amount will go on your taxes at the end of the year as
income so you will have to pay taxes on it, but you won’t have to pay the
full amount.
The problem with debt settlement is that it is similar to a foreclosure and
your credit will take a hit, so many times they recommend debt consolidation
for you will still be paying the same amount but over a longer period of
time.
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