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Information on Debt Consolidation Loan Vs. Debt Settlement

Mark Cappel
UpdatedFeb 26, 2024

What is the difference between debt consolidation and debt settlement?

I want a debt consolidation loan to pay off my credit cards. I do not want a debt settlement which will ruin my credit. Please tell me the difference.

Thanks for visiting Bills.com, here is the answer to your question.

#1: Debt Consolidation Loan

If you own a home, a secured debt consolidation loan may be right for you. Many people think first of a debt consolidation loan when seeking credit card relief. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt. It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very highÂ… but the monthly payment will be lower than other options and there is no credit rating impact.

Bills.com makes it easy to compare different loan types. Please visit the loan page and find a loan that meets your needs at: /loans/

#2: Negotiated Debt Settlement

Another great option to consider is the services offered by reputable debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a fast manner. In many cases they can also reduce your monthly payment toward your debt - sometimes cutting your monthly payments in half. There is one major drawback to debt settlement programs, though Â-they will damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of riding yourself of credit card debt.

If you would like to speak to one of Bills.com's approved debt help partners for a free consultation, please complete the application at: Debt Savings Quote.

I encourage you to explore the Debt Help section of Bills.com. Here, you can learn more about the options I have described above.

Best,

Bill

www.bills.com

Debt statistics

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Wyoming, 24% have any kind of debt in collections and the median debt in collections is $2680. Medical debt is common and 17% have that in collections. The median medical debt in collections is $1515.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.

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