What Is The Difference Between Debt Settlement And Consolidation Of Debt?

If you're buried in a mountain of debt, there are two alternatives to filing bankruptcy - debt settlement and debt consolidation. Both options can help consumers manage their credit, lower the balances they owe to creditors and get their debt paid off quicker.

Settling obligations to creditors is done through a company or organization that negotiates a reduced payoff amount with your creditors. Terms are agreed to and a manageable monthly payment is established between the negotiator and the creditor. It is your responsibility to pay this amount on time each month. You typically have to pay the settlement company an upfront fee and then there is a small additional fee tacked on to your monthly payment as well.

Consolidating debt is slightly different. They too negotiate with creditors to get your interest rate lowered and eliminate monthly service charges, thus reducing the total amount owed to creditors through the removal of interest and penalty fees. All of your high interest credit obligations are packaged into one payment that is due each month.

Debt settlement is best used when there are no other manageable options. The reason for this is you are essentially asking your creditors to accept less than what you're legally obligated to pay them. This will show in your credit report, as your balances aren't "Paid In Full."

Debt Consolidation will also negatively impact your credit score initially but your credit score will rise once the plan is completed. Consolidation is the better choice if you care about your credit score. If you simply want to rid yourself of debt fast, with no care about your actual credit standing, then settlement may be the way to go.

But both options beat the alternative of filing bankruptcy. Do some homework before signing into anything. Have a consultation with a qualified counselor who can help you choose between debt settlement and consolidation. They can help you determine which option best suits your current financial situation and how you can get the best results in the shortest duration of time. No amount of consultation and research is too much when it comes to finding a reputable and trustworthy company to help get you back on track financially.