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Debt Consolidation Vs.
Debt Negotiation
Debt consolidation enables you to pay off
your entire debt with lower interest rates. Debt negotiation lowers your debt
level with impacts on your taxes and credit report. Debt consolidation has the
least affect on your credit score and helps you get better credit terms in the
future.
Debt Consolidation’s Pros And Cons
To consolidate your debts, you can choose to take out a home equity loan or use
a debt management company. Home equity loans allow you to lower your rates and
write off your interest payments on your taxes. You also can have lower monthly
payments by extending your payment period.
A debt management company handles payments on your unsecured debts. They will
negotiate a lower rate with creditors, enabling you to pay back your debt
quicker. You send them one payment, and they handle your accounts.
With either type of debt consolidation, your credit will lower slightly.
However, by making regular payments and not opening new credit lines, your score
will quickly rebound.
You also want to make sure you find a reputable company, whether for a home
equity loan or debt management. Researching companies online is the best way to
ensure you are getting the best service and terms.
Debt Negotiation’s Pros And Cons
Debt negotiation is when a creditor reduces your loan amount through an
arrangement made by you or a debt negotiation company. Not all creditors will
reduce your debt, even if you work with a third party who specializes in debt
reduction. However, some will reduce loan amounts if they believe you will go
into bankruptcy.
Debt negotiation affects your credit score like a bankruptcy. Creditors report
your failure to pay the full amount, which will be on your record for seven
years. But after at least a year, you may find credit with some
subprime
lenders.
You also have to report reduced debt as earned income to the IRS. You will have
to pay a federal tax and in some cases a state tax.
Finding Help
If you are swimming in debt, debt consolidation and negotiation are options to
consider. While reducing your debt quickly is appealing, understand the long
term affects on your credit score.See also:
Mortgage Glossary3
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