Debt Settlement and Debt Consolidation - What's the Difference?

Consumer CollectionsThe differences between debt settlement and debt consolidation are the methods used to repay the debt. In debt settlements the process engages a degree of negotiation with the creditors, generally reducing the debt’s balance by as much as 50 percent in some cases. The remaining balance consists of the principle debt and an agreed amount of interest or fees, establishing a new debt balance.

Home equity loans or refinancing an existing loan is generally a form of debt consolidation, placing all of the debt into a single loan amount. Restructuring the loan balance with a better or lower interest rate usually results in a more manageable monthly payment. Neither of these arrangements erases the debt, they provide an alternative method for repayment of the amount owed.

Determining which of these solutions work best for you, you need to take a look at your financial situation. Both debt settlement and debt consolidation require some form of available cash or credit. If you’ve chosen debt settlement, you need to speak with the creditor or credit collection agency to discuss the options available. Be prepared to negotiate the debt balance and be sure to have the arrangements in writing, along with acknowledgements to your creditors and credit reporting agencies.

Debt settlement services will work with you charging a fee for their services. You may also need to quality before a debt settlement service agrees to take on your situation. Those qualifications may include income requirements with a specific amount of debt balance. Debt settlement may be the best solution if you are strapped for cash and unable to make a large settlement payment. There are precautions when considering a debt settlement company; first be sure they are accredited to provide these services. More important be sure that you are able to make the monthly payments towards your bills and the fees for debt settlement service. Debt settlement may affect your credit ratings as you go through the process.

Selecting debt consolidation works with good credit and may be easier for home owners with the available equity. Once again there are qualifications to quality for this method, which has less of a negative affect against your credit score, when the payments are made on time. Taking a personal loan may also be an option as long as the loan conditions are met or you have another form of collateral to be used.

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