Debt Settlement Versus Debt Consolidation

Georgia residents who are struggling with debt may be considering multiple options for debt relief. However, the distinctions among the different available forms of debt relief can be confusing. Debtors may not understand the specific process for debt settlement or debt consolidation, for example, or how those processes differ from one another. At the same time, it may not be clear if a debtor can exercise more than one option for debt relief. Our Lilburn debt settlement attorneys can provide you with more information and can assist you with debt relief today. Consider the following information about debt settlement versus debt consolidation, and the pros and cons of each.

Debt Settlement or Debt Consolidation?

 While the two processes sound alike, debt settlement and debt consolidation are two completely distinct forms of debt relief. As the Federal Trade Commission (FTC) explains, debt settlement is a process through which a debtor negotiates with creditors to pay a settlement amount, which is a lump sum totaling less than what the debtor owes the creditor. In exchange for paying the lump sum, the creditor forgives the remaining debt, or “settles” the debt.

Debt consolidation does not involve the payment of a lump sum or any negotiation about settling the amount of debt owed. Instead, debt settlement involves combining all debts into one large debt with an accompanying repayment plan that is designed for the debtor ultimately to repay the entire amount owed.

Pros and Cons of Debt Settlement

 Debt settlement has benefits and limitations that you should consider. One of the primary benefits of debt settlement is that it provides a way to repay only a percentage of the debt you owe and to have the remaining amount forgiven. Debt settlement, as a benefit, also allows many debtors to avoid bankruptcy in Georgia.

One of the primary cons of debt settlement is that it affects your credit (although not nearly as significantly as a bankruptcy filing). In addition, with debt settlement, the forgiven portion of debt is taxable as income on the debtor’s income taxes.

Pros and Cons of Debt Consolidation 

Debt consolidation has benefits and limitations. One of the primary benefits of debt consolidation over other forms of debt relief is that it tends to have the least impact on a person’s credit. Consolidating debt can also impact your credit score, although not as much as debt settlement, usually.

One of the major limitations of debt consolidation is that it does not involve forgiving any debt or eradicating liability, and the debtor still must repay the full debt over time. Often, the repayment process occurs while the debtor is accruing other debts.

Contact Our Lilburn Debt Settlement Lawyers 

Debt settlement and forms of debt relief can help you to get back on track financially, and one of the experienced Georgia debt settlement attorneys at Konn Law Firm LLC can help you. We have years of experience representing clients in debt settlement agreements, and we can begin working on your case today. Do not hesitate to get in touch with us if you have any questions or want to learn more about your debt relief options in Georgia.

Sources:

consumer.ftc.gov/articles/how-get-out-debt

experian.com/blogs/ask-experian/can-debt-consolidation-affect-your-credit-score/