Debt Settlement vs. Debt Consolidation

What is Debt Consolidation?

Debt consolidation is a term that we now hear very often given the fact that so many consumers are experiencing problems with their unsecured debt, especially high-interest credit card debt. Debt consolidation refers to a process by which individual debts are combined in some way to result in a single monthly payment, rather than a separate payment for each individual debt. There are a number of possible advantages to debt consolidation programs, but principally they are:

Simplification of the monthly bill payment process
Reduction in the overall interest rates paid on the debt
Reduction in the total monthly payment on the debt

The first of these is beneficial for those who are always having trouble keeping track of their individual payments and due dates. But the second advantage is usually the main selling point of debt consolidation programs. Consumers who are candidates for these programs are usually paying excessive interest rates and see reducing their interest rates as the principal goal. However the most important benefit that consumers should consider is the amount of time it will take them to become completely free of the debt as compared to the course of repayment that they are on currently. If the payment required to get on this fast-track to becoming debt-free is affordable and results in a greatly reduced payoff schedule, then it is a debt solution that should be considered, especially if it one that results in no credit score damage such as credit counseling and a debt management plan (DMP).

What is Debt Settlement?

Debt settlement, on the other hand, also delivers the advantages of a debt consolidation program, but has serious negative consequences in terms of the credit damage that will result. In actuality, debt settlement is a form of debt consolidation, but with some crucially important differences. Although they are not guaranteed, the potential benefits of debt settlement over debt consolidation are:

The balances on the unsecured debts are negotiated.
Interest charges and late fees are eliminated.
The consumer can become totally debt-free in a fraction of the time.

As you examine these benefits in detail, it becomes clear that debt settlement offers consumers a potentially more powerful means to free themselves from unsecured debt than typical debt consolidation programs. The debt balances are normally negotiated to 40% to 60% of what would otherwise be repaid in debt consolidation, and the interest charges are totally eliminated rather than being reduced. However these potential benefits need to be considered in light of the credit damage that will be sustained as a result of using a debt settlement program.

Get in touch with a professional debt advisor today to find out which debt relief program is right for you, as there is no “one size fits all” solution for debt problems. They will analyze your unsecured debt in the context of your overall finances and recommend the debt relief solution that best meets your needs. A brief consultation is all that’s needed to get you started on the road to financial freedom.