Debt Consolidation Vs. Debt Settlement

Debt Consolidation Vs. Debt Settlement: Which is Right for You?

Debt consolidation and debt settlement are two distinct services with one common goal: getting people out of debt and back on their feet. However, despite their similarities, these oft-confused debt relief programs are actually different. In this article, we will discuss the ins and outs (as well as the pros and cons) of each option, and hopefully help bring you closer to making the right decision for your finances and for your life.

Debt Consolidation

  • ● Debt consolidation means lower interests rates. These programs consist (not surprisingly) of consolidating existing debt into one single payment with an interest rate that reflects a discount from the amount that would have been paid.
  • ● Debt consolidation means paying the full amount plus interest. The benefits of debt consolidation are A) paying less interest, and B) receiving financial counseling--that is all.
  • ● Debt consolidation generally takes 4-6 years to repay. Debt consolidation is a long-term commitment; however, this leads to a high attrition rate among participants.
  • ● The verdict: Debt consolidation programs are typically run by credit card companies, so it is not surprising that they are not going to result in enormous savings. However, if you are falling behind on payments simply because of problems with planning finances and keeping track of payments, debt consolidation may help you get back on track.

Debt Settlement

  • ● Debt settlement means paying less. If you participate in a debt settlement program, a debt settlement company will negotiate with creditors on your behalf in order to dramatically reduce the amount of money you owe.
  • ● Debt settlement will impact your credit score. Because you will be delaying payments during the negotiation process, debt settlement will lower your credit score (at least in the short term.)
  • ● Debt settlement is an aggressive strategy: payments are often spread out of over a period of just 12 to 24 months. This is a big reduction from the 4 to 6 years required in debt consolidation, and an even bigger improvement from the 7 to 10 years of credit trouble associated with declaring bankruptcy.
  • ● The verdict: If you have significant debt and want to reduce your amount owed and get back to your life as soon as possible, debt settlement may be right for you.

Want to learn more about debt settlement? Visit Madison Monroe and Associates online today.

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