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BDO Barrie

200 - 300 Lakeshore Drive
Barrie, Ontario L4N 0B4
Phone: (705) 726-6331

Sized Up: Debt Consolidation Vs Debt Settlement

Despite ‘Generation Y’ also known as the ‘Millennial Generation’ possessing the highest levels of student debt on record, they still possess better spending habits compared to older generations. Perhaps the better spending habits are learned out of a necessity because this high debt load at a younger age affects their ability to spend and save in the same manner that older generations have; often times relying on older generations for financial assistance.

That is not to say that all ‘Generation Y’ adults are practicing exceptional spending habits, as many build up large credit card, loan, or line-of-credit debt in addition to student debt. Like every generation, they juggle the same responsibilities as those that came before it trying to manage debts, monthly expenses, helping aging parents, and providing for children. Sometimes the day-to-day life expenses makes the monthly payments on a student loan seem like too much to handle.

Whatever circumstances surrounding the debt are is irrelevant as its now money you need to pay back in a timely fashion. It can take years but becoming debt free is not impossible (even without winning the lottery), with some debt help advice and some self-control you can achieve this feat sooner than you might think possible.

Debt consolidation and debt settlement are two options available but it’s important to understand the difference between each of them.

Debt Consolidation:

“A single loan (generally from a financial institution) that allows you to repay your debts to several or all of your creditors at once. You are then left with only one outstanding loan – to the financial institution.” – Industry Canada

Debt Settlement:

Is typically done via an arbiter or legal entity that negotiates on your behalf with creditors; resulting in an agreed upon reduced outstanding balance owed to the lending institution or creditor. You may end up having to pay back less than the full value of the debt amount but your credit score will also be negatively affected.

Benefits of Debt Consolidation:

  • Typically one lower monthly payment
  • Interest rates on a consolidation loan are typically lower than a credit card
  • Less harmful to your credit score versus debt settlement
  • Lower interest means more of your monthly payment pays down the principal debt

Benefits of Debt Settlement:

  • Potentially could have to pay less based on the negotiated settlement
  • Can help you get out of debt faster
  • Lower monthly payments
  • Harassment from creditors and collection agencies should stop (as long as you are making your payments of course)

 Drawbacks of Debt Consolidation:

  • Debt still exists, it’s just centralized in one loan
  • May have to close or decrease credit limits on credit cards
  • Co-signer may be required on the loan and if payments are missed it can negatively affect their credit score as well as yours

Drawbacks of Debt Settlement:

  • Often results in negative credit scores and credit ratings because you are typically not paying back the full amount
  • A poor credit score/credit rating, creates difficulties for the consumer to rebuild their finances and get future financing
  • Financial advisors and debt relief experts warn to avoid or be cautious of using this method because of it’s affect on your credit score

Each option has positives and negatives, it’s important to understand what is the best scenario for your situation. The helpful advice from a debt relief expert can guide you on the appropriate path that will best position you for a better financial foundation moving forward. With interest rates potentially decreasing with the recent Bank of Canada interest decrease it’s a great time to start seeking help and relief from your debt situation.


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