What is Debt Consolidation Vs. Debt Restructuring?
Often, people do not know what the difference between debt consolidation and debt restructuring is. What does it mean to restructure your debt? How can you know which option to choose when deciding how to pay off your debt? It is important to explore and understand all of your options when deciding how to tackle your debt. Today I will explain what both debt consolidation and debt restructuring are and how either one of these can help you to get out of debt.
Debt consolidation is essentially taking out one big loan to pay off a number of smaller debts such as credit cards, payday loans or other consumer debts. Consolidating all of your debt into one payment can be very beneficial as it will often lower your interest rate by a substantial amount while making your monthly payment more manageable. It is often easier to handle one loan payment, making your budgeting simpler and giving you peace of mind knowing that your debt has an exact end date. In order to qualify for a consolidation loan you need to meet certain criteria. If you have a very good credit rating it is easier to qualify for a consolidation loan. On the other hand if you have poor credit, then this option may not work for you. Also in order to qualify for the loan you need to have the income needed to make your monthly payments. If you do not qualify for a consolidation loan and you are drowning in your debt, do not fear, there are other options available for you.
Debt restructuring, which can also be called debt settlement, is when a debt consultant proposes an offer through a Bankruptcy Trustee that essentially leads to the debtor and the creditor agreeing on a lower balance that is seen as paid in full. Often debts are drastically reduced and the payment plan is much lower and easier to pay. Once a proposal is filed and accepted by your creditors, your debt amount and interest freezes. You will then make interest free monthly payments over a set period until the amount agreed upon is paid in full. The down side to consumer proposals is that it will affect your credit rating for 3 years after your payment plan is complete. Once a proposal has been accepted however, you can begin rebuilding your credit.
Sometimes the debt load is far more than you can handle and a consumer proposal is no longer an option. In these cases bankruptcy may be the only way to go.
What is the right decision for paying off your debt? A consolidation loan may be the best option for you if you have the income and the good credit to qualify for one. Debt settlement can greatly reduce your debt, but it comes with a cost of your credit rating. It is important to know your options and understand the pros and cons for each so you can make the best decision for you.
To learn more about your options for paying off your debt in Red Deer, you can schedule a free consultation with 4 Pillars Red Deer. We will go over your information and help you decide what the best choice is for you. We will answer all of your questions and guide you through every step including rebuilding your credit. Call us at 403-755-1757.
