Debt Settlement vs Debt Consolidation
Which credit card debt relief option is right for your credit and financial situation?
Finding the right debt relief option can be tricky. Most people don’t know about these types of programs until they need them. As a result, finding the right solution is often left to guesswork. However, given that using the wrong debt solution can lead to even greater financial distress, it’s important to familiarize with these concepts so you can make an informed decision.
What is debt consolidation vs debt settlement?
- Debt Consolidation is a financial process that rolls multiple debts into a single, consolidated monthly payment. With credit card debt consolidation, you aim to reduce or eliminate the interest rate applied to the debt. This allows you to get out of debt faster, even though you pay less each month. It simplifies and accelerates debt repayment, making it easier to repay what you owe even on a limited budget.
- By contrast, Debt Settlement is the financial process where you pay back a portion of what you owe in exchange for a full discharge of the remaining balance. Simply put, you settle your debt for a percentage of what you owe. The settlement is usually made in a single lump-sum payment. If you get into a settlement program with a debt settlement company, they may tell you to stop paying your creditors and let the accounts lapse. Then they put the money you would use on payments into an account that’s used later to make your settlement offer. This can be extremely rough on your credit, but it may help you avoid bankruptcy if you have no options left.