Do you know the difference between debt settlement and debt relief? Although many people assume they mean the same thing, they are actually very different concepts. While they are easily confused with one another, they do not mean the same thing.
Both debt settlement and debt relief are sought to achieve the same result as one another: the result of reducing, or totally eliminating debts. So, what is the main difference between debt settlement and debt relief?
Debt settlement is the specific method of dealing with high amounts of debt and financial hardship. On the other hand, debt relief is an overall umbrella term under which freedom from debt is achieved using multiple effective methods.
Debt settlement is a finalized second-to-last-resort option that involves both benefits and consequences, whereas debt relief happens in many ways and with fewer consequences.
For example, a personal loan is a type of debt relief. Personal loans are either secured by collateral, an example of which can be your house or your car title, meaning it’s something of value to hold against your debt,or can be unsecured, which means there is no collateral, or nothing of value behind the loan. For an unsecured loan, it may involve more risk to the lender and therefore lenders giving unsecured loans often charge higher interest rates.
Funds from personal loans with lower APRs, or an Annual Percentage Rate, are used to supplant higher-interest debts such as credit cards or an adjustable-rate mortgage when its APR increases. Personal loans are also used for debt consolidation purposes, combining multiple higher-interest debts into one lower interest monthly payment.
Debt consolidation is also possible using only revolving accounts. It is possible to transfer high credit card balances or accounts with higher APRs to a single, new credit card account with a significantly lower APR. Balance transfers commonly involve zero-percent interest financing for a limited amount of time when you transfer balances from other cards into the new account.
When student loan debt relief is provided it is done so via loan deferrals or loan forgiveness options. Government debt relief programs exist to help alleviate financial hardship, pay medical bills, and purchase groceries.
Filing for bankruptcy is often the last type of debt relief people choose because a bankruptcy adversely impacts credit (FICO) scores for seven to ten years. When a bankruptcy is approved, however, all included debts are dismissed by the court.