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What is the Difference Between Debt Arbitration and Debt Consolidation
- The involvement of third party in debt arbitration
- Debt consolidated is preferred to debt arbitration
Several years ago debt consolidation, debt arbitration, debt settlement and debt negotiation in United States was not as topical as it is today. The reason for such a trend is that many American borrowers have accumulated significant amounts of debts in their personal ‘balance sheet’.
At the time when economy was booming it was not an issue to control and make monthly interest payments on time together with principal repayments at certain point. However, when the economic crisis has hit United States economy in the second quarter of 2008, many borrowers found themselves on the first of defaulting on their unsecured debts. This is where debt settlement and debt arbitration stepped in.
Many are slightly confused by the terminology of debt consolidation and debt arbitration. Debt arbitration occurs when you ended up in the situation of not being able to pay your debts and consider filing for bankruptcy. You employ a third party who would represent you personally through the debt negotiation process with the credit cards and would negotiate your debt position and repayment schedule with credit card companies in court.
The main goal of debt arbitrator is to reduce your monthly payments on unsecured credit card debts without declaring you bankrupt. Credit cards would still prefer to get at least something from you rather than being left with zero repayment. For specifically this reason they are interested in getting involved in court process.
Debt arbitrator would stand on your side and would make the most to reduce your debts. This is different from debt counsellors who are representing the interests of credit card companies and are negotiation from the perspective of recovering the highest amount possible from you. In United States troubled borrowers are supported by different organisations and lots of helpful information can be found on International Association of Professional Debt Arbitrators website.
On contrary, debt consolidation in United States does not involve debt arbitration and can be done without defaulting on your credit. Since debt consolidation is usually backed by the collateral you hold in the form of the house, it is much easier arranged if you have a house to secure new consolidated debt against. Debt consolidation would not involve any third party and is likely to help your credit rating.
There are many financial providers who provide debt consolidation service in United States and, if you do good research, you can easily find some decent companies that would not leverage on your troubled financial situation. This is said, you need to make sure that you choose the best interest rates and most favourable terms and conditions on your consolidated debt. It can involve lots of negotiation and planning, but at the end of the day it is really worth it.
Most of people would prefer to do debt consolidation rather than debt arbitration simply due to the fact that debt arbitration is very stressful process, which takes you through court and abuse from credit card companies. It may continue for a long time and is very likely to deteriorate your credit rating significantly. Moreover, you probably would not be able to arrange any debt from the next 7 years according to statistics.