The Difference Between Debt Settlement and Debt Consolidation

Two forms of financial means that help individuals struggling with paying off their debt includes debt settlement and debt consolidation. Although both are these are used to solve the same problem, they offer different debt-relief services.

What is debt settlement?

Debt settlement is a process of negotiating with creditors to settle your debt at a much lower amount than what is owed. These creditors usually work towards drawing up a payment plan for you that best allows you to pay your debt back. This method is mostly used to settle a debt with a single creditor but is also used to settle a debt with multiple creditors.

What is debt consolidation?

Best described to combine debts from various creditors, that follows with taking out a single loan to pay back all the creditors you owe, debt consolidation takes place at lower interest rates at a lower monthly payment. This usually takes place when consumers have too many credit cards and bills which monthly payments they cannot afford.

Depending on the period it will take to eliminate all debt, as well as your credit score, these methods can make your debt status more manageable and can assist with helping you get out of debt quickly without having to pay too much additional cash.

Debt-Management-vs-Settlement

Factors that influence debt settlement

The number one thing that makes debt settlement seem so appealing is the fact that it allows you to pay less than you owe and helps you to safely eliminate debt quickly. On the other hand, it is considered a much riskier option than debt consolidation and has far more negative factors than the other.

It includes a representative that negotiates your debt for you. They thus offer a debt settlement to your creditor to settle the debt at a much lower price then what is owed if paid immediately. This is a good option when having to settle a payment with one creditor but once it turns into a few, it is a process that can take longer than any other. Each credit card, bill or account will have to go through the same process to be settled. In addition, you might also be charged with extra interest fees on all your debts which makes it much more difficult to pay them back.

The factors of debt consolidation

Having too many bills to pay can be stressful. Debt consolidation is a great way to relieve this stress. This will only work when you stop spending money, however, which has been proven to be very difficult to those that are deep in debt.

Debt consolidation has many positive factors. It is a simplified process to pay off your bills and include making only one payment to one lender during one deadline monthly. This works far better than making multiple payments that include multiple deadlines. Although this is the most preferred method of paying a debt, there are added costs involved which includes interest on each individual payment.

The only negative factor with the type of debt relief will be that you owe the exact amount of money to the debt collector and that it cannot be reduced.

There are many different types of debt consolidation. These include a balance transfer of credit cards, personal loans, home equity loans and debt management plans. All of these are useful plans that will assist you while at the same time help you reduce the stress of payments.