Debt settlement and debt consolidations are the two options for people who have a lot of debt problems. Debt settlement can reduce the amount of debt you owe while debt consolidation can reduce the number of payments you make. Both aim to make it easier for you to manage your debt so that you can become debt free in a shorter period.
Differences
Debt settlement services involved negotiating with the creditors to reduce the original debt amount. Creditors are not required to accept settlements. However, most are willing to accept them to get back any amount they can as they don’t want to lose money. After you clear the settlement amount, your debt is considered paid and you are no longer in debt. Debt settlement usually can be resolved within 3 – 6 months.
On the other hand, debt consolidation does not involves any negotiation with the creditor to reach a settlement amount. In debt consolidation, the third party agency will help you to negotiate for a lower interest rate. Debt consolidation will take longer time to pay off. It typically takes 2 – 4 years. Sometimes, you will be required to use your property such as house or car as collateral.
Similarities
Both debt settlement and debt consolidation .companies can help you to save money in the long run. Debt settlement reduces the total amount you owe while debt consolidation reduces the interest rate. Both did not completely discharge you from the debt. You still have to pay back part of the debt. Although it is possible to settle or consolidate the debt yourself, it is better to get help from a company that specialized in this area. A reputable debt relief company is able to help you carry out the negotiation on behalf of the creditors. They possess the skill to convince the creditor to agree to the settlement offer. They will be in charge of the entire process so that you can focus on other tasks.
Conclusion
In conclusion, debt consolidation can reduce your repayment amount without causing a lot of impacts on the credit report but it takes more years to pay it off. Debt settlement can help you to clear off your debt in just a few months but it also damage your credit scores at the same time. When considering which option to go, make sure you take into account the short term and long term consequences. Regardless of which option you choose, make sure obtain quotes from 3 – 5 companies and compare the rates.