Debt Consolidation vs Debt Restructuring – Which is Better?


Many people in the country have a serious debt problem. Credit card debt, especially, is particularly easy to amass. With excess debt comes added worry and angst. That’s why when debt becomes too unmanageable, consumers look for ways to reduce and sometimes even resettle that debt. Two of the most commonly used debt management tools are debt restructuring and debt consolidation – here’s all you need about each of them.

Debt Consolidation

Debt consolidation is the process that allows borrowers to convert multiple smaller loans into a single loan or get a balance transfer credit card and transfer all their outstanding balances to the card. This makes payments a lot more convenient, and borrowers will be able to repay their loans within a short span of time. If the new loan has a lower rate of interest, borrowers will also be able to save money on interest payments. This means the money you previously used to pay the interest of multiple debts can be put towards the outstanding loan’s principal, thus helping you clear your debt a lot faster.

Debt Restructuring

Here, a debtor and the creditor agree on a certain amount that the borrower can pay back. The debtor then gets in touch with a credit counselor who will speak on the debtor’s behalf to the creditor to negotiate a more manageable repayment. For instance, the credit counselor will negotiate with the creditor and let them know that they can pay 60% of the outstanding loan back, instead of the full amount. Given that so many loans are written off, many creditors will agree to terms like this if it is done right.

Differences Between Debt Consolidation and Restructuring

Debt consolidation typically requires a new loan application, whereas debt restriction builds off the existing contract. People who opt for debt consolidation are not always in financial hardship. But those who file for debt restructuring are usually financially affected.

That said, both forms of debt management essentially have the same goal – they make your debt more manageable. Further, your existing loan repayment amounts and terms will be altered regardless of which method you choose.

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