Q: Is debt settlement the same as debt consolidation?

A. No. The goal of debt settlement is to reduce the overall amount of the debt, by negotiating agreed payoff amounts with your creditors. Debt consolidation requires you to take a loan to pay off your unsecured debt with secured debt.

• Debt Consolidation loans transfer the debt from one account to another and typically takes an unsecured debt(s) and changes it into a secured debt (usually your home). If you do not have enough equity (typically 25 – 30%), bad credit, or too much debt, it is not likely that you will be approved for a debt consolidation loan.

• Statistics are that about 70% of people who obtain a debt consolidation loan find themselves in deeper debt than they were originally in within a two year period. You cannot borrow your way out of debt. Ask yourself why you would want to go from an unsecured loan to a secured loan over a longer period of time?

• The main problem with consolidation loans is that once you have paid off the credit cards you have a whole new source of spending power: $0 Balance credit cards. It does not take long before these cards are maxed out again leaving you in a worse financial situation. You end up not only having to pay back the cards but also the consolidation loan.

• If you start missing payments on the consolidation loan, you stand to lose the asset (usually your home) that the loan is secured against.


 

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