Debt Consolidation Advantages

If you've studied the areas of debt management you know that there are many different ways to find quick debt relief from losses. When debt threatens to overwhelm your financial situation you can turn to bankruptcy, or debt negotiations or settlement options as well. Debt consolidation has advantages over these other types of debt relief options that make it an appealing prospect.

Debt Negotiation

One term that is commonly confused with debt consolidation is debt negotiation. The two are different approaches to managing a debt problem or situation. Whereas debt consolidation is a relatively early acceptance of a possible issue with debt and an attempt to find quick debt relief from losses by paying off old debts with a new one, debt negotiation is a frank discussion with your lenders that attempts to get them to lower the interest rate or total due on your account. Most lenders have issues with agreeing to settle for less than what the original contract was for and so will balk at a debt negotiation unless it is handled professionally, and if they have reason to believe that the consumer's other option if they refuse is bankruptcy. Whereas a properly managed debt consolidation will not have a negative effect on your credit score and may, in fact give you a slight improvement, debt negotiations will almost always have a negative effect on your credit score as your lenders report to the reporting agencies that they had to modify the terms of your contract in order to enable you to satisfy the debt.

Bankruptcy

Filing for bankruptcy is a last resort when people are seeking to find quick debt relief from losses. A bankruptcy filing is extremely damaging to one's credit report, but the trade-off is that most types of debts will be discharged or rather, you have no liability for them any longer. The two most common types of debts that are not discharged in a bankruptcy are student loans or taxes/back taxes owed to the IRS. If you have a tangible asset secured by credit that is included in the filing like a house or a car, you will usually be allowed to keep it as long as you maintain the payments on the vehicle. If payments stop, the lender has the right to repossess immediately. Debt consolidation is superior to bankruptcy because it doesn't hurt your credit score and is actually likely to provide your credit with a little bounce if it is properly handled.