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Debt Consolidation Vs. Debt Settlement


Credit card debt can be a tough problem to solve. And when you’re researching solutions, you may come across certain ones that sound vaguely similar. Debt settlement and debt consolidation might be easy to mix up, but they both offer very different approaches to tackling debt.

CNBC Select explains how debt consolidation and settlement work, how to choose which is right for you and what other solutions to consider.

Debt consolidation vs debt settlement

What is debt consolidation?

Wells Fargo Reflect® Card

On Wells Fargo secure site

  • Rewards

  • Welcome bonus

  • Annual fee

  • Intro APR

    0% intro APR for 21 months from account opening on purchases and qualifying balance transfers. 18.24%, 24.74%, 29.99% Variable APR thereafter.

  • Regular APR

    18.24%, 24.74%, 29.99% Variable APR on purchases and balance transfers

  • Balance transfer fee

    Balance transfers fee of 5%, min $5.

  • Foreign transaction fee

  • Credit needed

A debt consolidation loan can also make your debts easier to manage. It’s a personal loan designed for combining two or more unsecured debts. If you’re approved for one, the lender will offer you an amount required to cover the debts. Many lenders even pay off your creditors directly. After that, you’ll have a single fixed monthly payment with a fixed interest rate. Paying in installments makes for a predictable repayment schedule. And if your new APR is lower than what you’ve been paying before, you can also save on interest charges.

If your credit is in good shape, you’re more likely to qualify for the lowest rates. CNBC Select recommends LightStream for borrowers with good or excellent credit. You can get same-day funding and there are no origination, early payoff or late fees.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    7.99% – 25.99%* APR with AutoPay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, and others

  • Loan amounts

  • Terms

    24 to 144 months* dependent on loan purpose

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.

And if your credit leaves a lot to be desired, Upstart can be a great option since it works with borrowers with a minimum score of 300 and even those with insufficient credit history.

Upstart Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation, credit card refinancing, wedding, moving or medical

  • Loan amounts

  • Terms

  • Credit needed

    FICO or Vantage score of 600 (but will accept applicants whose credit history is so insufficient they don’t have a credit score)

  • Origination fee

    0% to 12% of the target amount

  • Early payoff penalty

  • Late fee

    The greater of 5% of monthly past due amount or $15

What is debt settlement?

New Era Debt Solutions

  • Cost

    14% to 23% of enrolled original debt

  • Highlights

    New Era Debt Solutions has slightly lower fees than some of the other debt relief services we rated. It’s been in business for 22 years, and is rated 4.93 out of 5 for customer satisfaction through the Better Business Bureau.

  • App available

Is debt consolidation or settlement right for you?

For most people, debt consolidation is the better choice. When comparing the two options, here’s what to consider:

Of course, that doesn’t mean debt consolidation is always an ideal solution. Balance transfer credit cards often require good or excellent credit (or a FICO score of 680 or higher), so having a score on the lower end might result in a denied application. Some lenders offer debt consolidation loans for bad credit but will probably charge a high interest rate. And most importantly, debt consolidation requires discipline and patience. If you don’t stick with the plan and instead keep adding to your debt, you risk finding yourself in an even worse situation.

Other solutions to consider

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Bottom line

Debt consolidation and debt settlement are two very different solutions to the same problem. Carefully analyze your situation to make the right choice and make sure to consider any additional options. Whatever you decide, discipline will be key to success. After all, it’s hard to eliminate debt if you keep adding to it.

Why trust CNBC Select?

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.





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