Debt negotiation and debt management/consolidation both help
consumers pay off their debts through two different approaches.
Each affects your credit score, payoff period, and taxes
differently. Before choosing either options, be sure you
understand the long term consequences of each debt management
option.
Influence On Credit Score
Debt consolidation is better of the two when it comes to
influencing your credit score. By consolidating your different
loans into one, you are using the same amount of credit and will
be dinged only slightly for opening another account.
If you choose a debt consolidation company, your creditors may
report delayed payment. However, after regular payments have
been established for several months, you will be able to apply
for more credit if needed.
Debt negotiation leaves a lasting impact on your credit history,
much like a bankruptcy. When creditors agree to reduce your
debt, a record of the debt reduction will stay on your credit
score for seven years. However, you will be able to qualify for
credit as your score improves, usually within two years.
Payoff Period
Using a home equity or personal loan to consolidate your debt
can extend your payoff period up to 30 years. You can also
choose shorter periods for your loans. A debt consolidation
company can help you pay off unsecured loans in less than five
years.
Debt negotiations reduce debt, but don't eliminate it. Credit
cards and short term debt can be paid off in less than five
years. Other forms of credit can take longer.
Tax Impact
Interest from your home equity loan can be deducted from your
taxes for a financial savings. But any debt reductions have to
be reported as income to both federal and state governments.
Expect to pay income tax with debt negotiations.
Cost Of Fees
With both types of debt management, you can expect to pay fees.
Depending on the type of home equity loan you pick, fees can
range from hundreds to thousands of dollars. A second mortgage
or line of credit have lower fees than cashing out your equity
with a refinanced mortgage.
Debt management and debt negotiation companies also charge fees
for their services. Fees should not be paid until these
companies actually provide you with a service. Also, compare
several companies to be sure you find the best deal.
About the author:
Carrie Reeder is the owner of
www.abcloanguide.com, an
informational website about various types of loans. View her
recommended
Online Debt Consolidation companies.
