It depends. One quick point to start, may people use the words debt consolidation and debt settlement interchangeably. However, I want to explain the significant difference in these plans.
Consolidation is the getting a new loan and using it to pay off prior debts. Debt settlement is the negotiation of debts to reduce the balance owed and obtain a settlement lump sum or payment plan.
If you choose consolidation, opening a new line of credit can reduce your score temporarily because you now have a new debt. This would be necessary if you plan on taking out a large loan to consolidate a few smaller debts you may owe. The most difficult part of a consolidation loan is the qualification process. Many of my clients are not able to qualify for the loan when they apply. This may be because they already have delinquencies on their accounts or their credit scores have already been reduced. This sometimes makes it difficult to qualify for a consolidation loan.
Also another factor is the interest rate of the consolidation loan. If the interest rate is too high when you consolidate, you will not receive the relief you are looking for on a monthly basis.
It is important to find an attorney who can explain all of your debt relief options. Our team can provide a free personalized debt consultation that allows you to make an informed decision. There are many options for debt relief, we make sure you get the most from your fresh start.
If you have any questions about the topic discussed in this article, or any bankruptcy law matter, please give us a call at Bononi & Company 724-832-2499.