There is no one formula to get rid of debt. Even if you have the same debt amount as a neighbor or colleague, it does not mean you should opt for the same debt relief program. It is a case to case basis that will depend on your income, your monthly obligations, and even your personal characteristics. The important consideration is to choose the option that you can see through the very end.
A lot of people are caught in between debt consolidation loans and debt settlement. Both have their pros and cons and frankly speaking, the latter seems like the better option. The promise of debt reduction is very attractive especially for people who are struggling to make ends meet. However, there are cases wherein you are better off getting a loan than settling with your creditors.
So when does it make sense to choose debt consolidation loans over debt settlement?
When you have more income than your expenses. Of course, you need to have more income than your expenses. That means you have extra to pay off your debts without sacrificing your lifestyle. But if you want to make the commitment to get rid of your debts faster, you can reduce your spending or increase your current income to grow your debt payments. If you have more expenses than you have income, then a debt consolidation loan will not help you achieve financial freedom.
When you have a steady income every month. This is actually a requirement before you gain approval of a loan - a steady and reliable income. If you do not have a job, getting a loan will not make sense and will only get your further into debt than when you started.
When you have a good credit score. It also helps to have a good credit score to maximize the benefits of your loan. This will allow you to benefit from a low-interest rate. The idea is to have a total interest that is lower than your current debt situation. If you will end up with a higher rate, then this is not the right debt relief option for you.
When you only need a small reduction on your total debt amount. Most of the time, a debt consolidation loan can lower your interest rate - at least if you choose the right loan and you have the right qualifications. If you need a more significant debt reduction to afford the monthly payments, then you need a debt settlement.
When you want to maintain a good or build up your credit score to prepare for a future major purchase. If you have plans to purchase a home or something major in the near future, that means you should take extra care of your credit to make that happen. If you want the option with the least negative impact on your credit score, you should choose a debt consolidation loan. Your score will be lower at first but as you make regular and consistent payments on time, your credit score will steadily rise as well.
Making the right choice in your debt relief program will help you achieve financial freedom as soon as possible. If you have doubts, get in touch with a professional for advice.
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