The American Psychological Association (APA) found that 72% of Americans are stressed about money. Moreover, 22% are under extreme stress. Mountains of debt cause this. Often, people feel so helpless that their only solution is debt resolution or consolidation.

What’s the Difference Between Debt Consolidation and Debt Resolution?

Debt consolidation is different from debt resolution. In the former, all your loans are collected under one umbrella loan, and this is usually a personal loan that encompasses your debt. You make one monthly payment into the loan, which pays your creditors.

In debt resolution, a negotiator acts on your behalf to reduce the principal amount on your outstanding debt. The reduced principal balance decreases the interest that you have to pay and could enable you to add savings to the payment, which allows you to pay off your debt faster.

Pros and Cons of Debt Consolidation and Resolution

Each method has its pros and cons.

Consolidation

Pros Cons
  • Your credit score will improve as the loan balances go down.
  • A single payment makes debt easier to manage.
  • The regularity of the payments helps your payment history, which is good for your credit reports.
  • You only pay interest on one account, which saves you money every month.
  • You have an opportunity to pay off your debt earlier than the payment term.
  • In some cases, you need a good credit score to qualify for a consolidation loan.
  • Your credit rating will temporarily decrease
  • There may be extra fees, including origination fees, closing costs, and balance transfer
  • You must maintain the payment amount. That means no missing debt payments.
  • It’s not a panacea. You must find the root cause of debt and address it.
  • The illusion of having more money leads to more spending.

Resolution

Pros Cons
  • Combines multiple debts into one payment per month
  • Lower interest on the original debt
  • Reduction in principal amount
  • Credit scores increase as your debts are paid
  • Cheaper fees overall
  • Not all debts are eligible, including student loans, home loans, and car loans
  • Credit card companies aren’t obligated to agree to loan terms
  • Credit scores drop temporarily
  • High fees upfront

How Debt Consolidation Works

Debt consolidation may sound odd because you take out another loan to pay off all your original debt. However, it’s a simple solution that saves you interest and allows you to make regular payments to lessen your loans relatively quickly.

You must take out a personal loan, also known as a debt consolidation loan or a balance transfer credit card. This tends to be the cheaper of the two, especially when it comes to interest rates. Arrange a consultation with an expert in debt consolidation programs, who will guide you through the next steps.

Your consultant arranges for all your current debts to be paid from the new loan. You pay a determined amount, and it will be split among your creditors. With the debt consolidation loan, you have a predictable, single payment, which really helps your budget.

How Do I Start the Doubt Consolidation Process?

Many of the steps to follow are the same as applying for debt resolution, but some differ. To start with, you must have a good understanding of your finances. Look at your spending and interest rates. Check your credit score and find out what that means exactly.

Don’t choose the first loan servicers you find. Search around, look at reviews, and compare overall prices, including things like origination fees. Pay close attention to interest rates and find out if the loan provider requires a prequalification or a soft credit check. Some online tools will help you find out if you prequalify or not. 

Ensure you have everything you need to apply for a single loan, including ID documents, proof of income, and bank statements, perhaps even some references. With the loan secured, you can finalize your budget and try your utmost to stick to it.

How Debt Resolution Works

Your representative negotiates with all your creditors about the outstanding balances to get the most favorable payment option. A good negotiator will also exclude fees and interest accrued. This helps you to commit to a set payment schedule that pays off the principal amount and not just the interest.

How Do I Start the Debt Resolution Process?

As with debt consolidation, the first place to start is to take a good look at your finances. Be as honest and accurate as possible. If you’re going to sugarcoat it for yourself, you won’t get a thing out of the debt settlement program.

Calculate the real cost of your debt balances, including credit card debt and bank charges. This will be tricky if you have several accounts. If you know someone who is good with numbers, rope them in. Otherwise, paying a freelance bookkeeper to help you might be worth it, especially as another recommendation to set up a budgeting system that will keep you on track.

Look for and prioritize troublesome areas, for example, your student loan. You should also look at the areas with the highest credit and assess your spending. Travel could be a big expense, so see if there are things you can do to save money. Can you take the train or bus? Think about using a scooter to get to work. Not only are they lighter on petrol, but they’re also better in traffic. 

After following these steps you might see that if you organize your and use a budgeting system, you can manage your debt on your own. On the other hand, you might look at your findings and despair. That’s when you contact a company that specializes in debt settlement programs to help you get your finances under control.

How Alleviate Financial Solutions Can Help with Debt Settlement Programs

Alleviate Financial Solutions is a debt relief company with debt settlement programs designed to reduce credit card charges, other unsecured debt, and fees and interest charges. We have a debt management system that simplifies the debt reduction process and helps your financial situation. 

Alleviate Financial Solutions guides you through the program. Part of this is helping you establish a savings account which is essential to your debt settlement program. You can also use it to help you with debt management. 

Visit our website for a risk-free debt relief assessment, or fill out our online form to have all your questions answered by our debt experts at Alleviate Financial Solutions today!

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