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Many consumers have received phone calls explaining that they can settle their credit card debt for a fraction of its total. While this is possible, taking the debt settlement route can have negative consequences on your long-term financial health.
Debt settlement works this way: a company acts as an intermediary, making calls to your credit card company or another creditor for you.
The personal loan, on the other hand, is simply a lump sum of money you win from a bank or alternative lender after filling out an application form and submitting some financial documentation.
But to further guide you in deciding which path to take, here are the risks and rewards of debt settlement versus the personal loan.
Debt settlement comes with the following potential risks.
A debt settlement company negotiates with your creditor to demand less money that what you actually owe. Your creditor, in turn reports this event to the credit bureau, explaining in detail that your debt was settled for less than how much was owed. Credit bureaus degrade your credit score. Further, seeing this history future car, home and bank lenders will be reluctant to do business with you.
The money you escaped paying isn’t the free pass debt settlement companies imply. The IRS will demand a slice of this “discount” in your taxes. You will pay taxes on it as if it is income. Your debt settlement company sends information to the IRS and to you. In fact, if you do choose to use a debt settlement company, make sure to ask up from what the tax implications are.
Debt settlement does help consumers reduce their debt. Also, when you try of applying for a loan when you still have not fixed your debt yet, you are certainly going to have a hard time. As a matter of fact, lenders are highly unlikely to be willing to work with you if this is the case. But when you do eliminate your debt, you will be attracting more lenders to work with you and even open up a lot of other opportunities for your own success.
Giving your lender a lesser amount of the amount owed leaves more money for you to use to buy a car, home or other asset. Make sure you maximize the amount forgiven you will only be successful in this when you have already mastered the labyrinth of debt settlement.
Aggressive creditors can make your life a nightmare. Even more frightening, when you do not respond, they file a lawsuit which could be served in public and end up garnishing your wages. Debt settlement puts this interference to a stop.
Many are surprised that personal loan rates are typically sometimes twice as high or higher than home and auto loan rates. The better your credit score, the lower rate you will get. Still, those with personal loans pay a lot of end their creditors calls.
Some lenders charge high penalties if you pay the loan off early. Make sure to read the terms and regulations of the contract or ask your loan officer. First Financial personal loans never have penalties for early pay off.
A personal loan should be simple: you apply for a personal loan, the company pays for your debt, and in turn, you will be going to pay the company. View additional fees or meeting with bankers with suspicion.
The thing about having a personal loan is that it can pay off your credit card debt in no time. The credit bureaus also see this move as a commitment to pay the debt rather than escape it by going into debt settlement. This move reveals your habits of paying your debts and impresses lenders.
A personal loan does not require property for collateral. Therefore, if you do default on it, you aren’t at risk for foreclosure or repossession.
When considering personal loans, don’t forget that online lenders have the automation and reduced overhead to offer the best loans and terms. First Financial is the national leader in providing personal loans for borrowers of all types, even bad credit borrowers. Just fill out our simple application form, and get the money in your account in a matter of days. The Better Business Bureau rates First Financial A+ because we make customer service our highest priority.
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