Is your mailbox full of unread credit card statements from the credit card companies? If answered yes, you should always make sure that you stay in track with your credit card bills so that you don’t accrue unnecessary charges and fees. There are ways in which you can eliminate your debt burden and live a debt free life. Debt consolidation and debt reduction are the most common ways that are resorted to by the debtors. While one has a positive impact on your credit score, the other will trash your credit score. If you too are confused about using debt consolidation or debt reduction, here are some points that you may consider before seeking help of any of the aforementioned option.
Debt consolidation – When is it a good idea for the debtors?
When you have to split your income among multiple credit cards, you can certainly think of consolidating your debts into a single monthly payment. If you choose a professional debt consolidation company to consolidate your debts, you can get a debt consultant who can assist you in negotiating with your creditors and lowering the interest rates on the credit card accounts. The debt consultant will assess your personal finances and see whether or not this is the right time to consolidate debts. If they feel that you can’t repay your debts on your own, you can easily start making payments through them and thereby reduce the monthly payments. While you start making the monthly payments to the debt consolidation program, this boosts your credit score in the long run.
Debt reduction – Why isn’t this a good idea to repay debts?
Well, if you’re someone who is worried about the repayment ability due to your meager income, you can certainly go for debt reduction or debt settlement. Here you can waive off a portion of your outstanding balance and facilitate the debt repayment procedure so that you can immediately get out of debt. You have to enroll yourself with a debt settlement plan through which the debt consultant can negotiate with your creditors in order to make them agree to principal balance forgiveness. However, the only point that makes debt settlement a bad option for the debtors is the negative impact that it has on your credit score. The better your score was before you settled your debts, the worse will be the impact on it. Therefore, if you have saved enough money, then you should contact a debt consolidation program instead of a debt settlement program so that you can protect your credit score in the long run.
Therefore, when you’re drowning in a sea of credit card debt, you should make sure that you choose the most appropriate debt solution so that you do not repent later. Educate yourself on the pros and cons of the debt solutions so that you may choose the best according to your budget and affordability.