Do you know the difference between debt consolidation and debt restructuring? If not, then check out their basic difference and how they affect the credit score.
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Andy Masaki On 27th Sep,16
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Is debt consolidation same as restructuring debt?

There is no doubt, that the amount of debt acquired by individuals have gained momentum after the Great Recession.

According to the Pew Charitable Trust’s July 2015 report, "80% of Americans are in debt, with 39% in credit card debt."

As per the same report:

"The average U.S. credit card holder owes $7,789 in unpaid credit card debt, according to a March 2016 study from CardHub.com. The study also showed that Americans amassed $71 billion in credit card debt in 2015 alone. U.S. financial consumers are falling into toxic debt in other key areas, as well. According to the New York Federal Reserve, total auto loan and student loans stand above $1 trillion."

From the above statistics, it is clear that day by day people are getting buried under the debt pile. Apart from individuals, organizations and institutions, like business entities, are also falling into the debt trap.

So, what’s the solution?

The solution is to pay off debts through different debt relief options like:

  • Debt consolidation
  • Debt restructuring
  • Debt management
  • Bankruptcy
  • DIY debt reduction
  • If you have gathered debts, then don’t panic, stay calm. With the help of the above debt relief options try to pay off your debts as soon as possible. And, if you have any problem or if you’re confused about how to proceed, then don’t hesitate to consult a professional. They’ll suggest you the best option to manage your finances.

    If you are struggling hard to become debt free, then you can take help from OAK VIEW LAW GROUP’s debt relief programs.

    I hope, by now you know what to do in case you’re facing debt challenges.

    Do you remember what I have mentioned above? Don’t remember?

    Take a quick review here:

    First, with the passage of each day, a large number of individuals and business communities are facing immense debt problems.

    Second, you can take help of different debt relief methods to pay back your debts.

    Do you remember the term “debt consolidation” which I’ve already mentioned? Yes? Good! So, now check what debt consolidation is all about.

    Debt consolidation

    Debt consolidation is the process that combines multiple debts into a single and easy monthly payment.

    You can combine your unsecured debts such as medical bills, credit cards, student loans, taxes, and pay them off by making a single payment each month.

    This debt relief option will save you money as you make the monthly payments at a reduced interest rate. Also, it’ll be easier for you to pay off your debts as monthly payments will also get reduced.

    Your credit history and credit report won’t get hurt as you’re trying to pay back all your debts in full.

    Know more - Debt consolidation helps you consolidate bad debt to zero

    So, now I’d like to draw your attention to something different that is, debt reconstruing.

    Debt restructuring

    Debt restructuring is a debt relief option where the debtor negotiates with the creditor to agree on a lower payoff amount.

    The debtor can get rid of that debt by paying the agreed upon amount. The account gets updated in the credit report as "Paid as settled."

    Debt restructuring can also be called debt settlement.

    You can opt for debt restructuring in situations like severe cases of personal and business debt. You can also approach debt settlement companies who’ll do the negotiation on your behalf.

    Read more - Debt settlement solves your debt reduction needs fast: True?

    In words of Jerry Gupta, chief executive officer at FundTerra, a next-generation real estate brokerage firm based in Boston, Massachusetts, "this is usually under threat of bankruptcy where the lender feels he or she may get more money back by renegotiating as opposed to letting it go to bankruptcy."

    Now, can you answer this - IS DEBT CONSOLIDATION SAME AS DEBT RESTRUCTURING?

    From the above discussion, it is clear that debt consolidation and debt restructuring are NOT THE SAME.

    Why?

    Check this out and clear your doubts again:

    DEBT CONSOLIDATION DEBT RESTRUCTURING
    Interest Rate The interest rates on your debts will get reduced Negotiation is done to reduce the outstanding balance
    Outstanding Balance You’ve to pay the full outstanding balance The outstanding balance gets reduced
    Payment Structure You’re combining your multiple debts into a single monthly payment You’re paying off debts through lump sum payment
    Affect on Credit Score Won’t affect your credit score negatively as you’re trying to pay off your debts in full Your credit score will get hurt since you’re paying a reduced balance
    Trust Account No trust account is needed since creditors get payment on monthly basis When you enroll in a settlement program, your monthly payments are deposited in a trust account
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