What’s the Difference Between Debt Settlement and Credit Consolidation?

Posted by on May 14, 2012 in Uncategorized | 1 comment

Many debt relief companies provide both credit consolidation programs and debt settlement services. Both can be effective and beneficial ways to reduce your debt and to establish good spending and saving habits for your future financial health, but what is the difference between these two programs, and how do you know which one is right for you? Read below to learn more about your options.

Credit Consolidation

Also referred to as debt management or consumer credit counseling, credit consolidation is a way to receive financial education so that you can better track and manage your personal finances. In addition to providing credit counseling services, many debt relief agencies can assist you with debt management plans, which involve negotiating repayment plans and securing lower interest rates and lower minimum payments to your creditors. After credit consolidation, debts are not settled for a lesser amount than what you owe.

Debt Settlement

Debt settlement, on the other hand, is a savings program that usually involves negotiations with your lender to get a reduced balance. The goal is to have the accounts being reported as settled for less than the originally agreed upon balance. During the process, your budget and financial circumstances will be examined, for the purpose of creating a savings program that you can afford. Each month, you will deposit money from your personal checking account into your debt settlement account. At the onset of this process, you stop paying your lenders in order to have more leverage in negotiations. Unlike with credit counseling, this course of action can affect your credit, but the end result for many customers is that they get out of debt under a structured plan once they have enough money to pay off the debt as well as the debt relief agent’s fee. Often, people find that they ultimately saved money under the settlement plan. Debt settlement plans and credit and are sometimes recommended for those individuals who are unable to afford their credit card bills. As with credit consolidation, people have the option to negotiate their debts themselves, but many people have found an advantage is working with a BBB accredited debt settlement company in this effort.

Tags: debt settlement, credit consolidation

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One Response to “What’s the Difference Between Debt Settlement and Credit Consolidation?”

  1. Even if you qualify to get a debt coniolidatson loan, you should probably avoid getting one. The reason? When people have their credit cards paid off with the coniolidatson loan and have all that available credit to use again, it’s simply too tempting to start using all the new available credit and you quickly find yourself in twice as much debt as before.Another option: Contact your local Red Cross for a referral to the local Consumer Credit Counseling Services (CCCS) in your area. They can negotiate much lower payments and interest rates. They DO NOT negotiate settlements.They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to enrolled in debt management. This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program .so don’t use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you’re enrolled in the CCCS debt management program . Otherwise, it can be a very good way to deal with your debt.Please note that CCCS cannot perform miracles in situations where there is an overwhelming level of debt relative to your income/assets. Sometimes Chapter 7 bankruptcy is the only solution to overwhelming debt. Don’t let anyone smear or guilt-trip you for making this decision if you have to especially all the people who like to quote Dave Ramsey who think that BK should always be avoided .this is ridiculous advise that only benefits credit card companies Of course BK should be avoided if at all possible but sometimes it is needed. Do what’s best for you and your family. Corporate America uses BK all the time and no one slams them.Just remember that you can only file for Chapter 7 once every eight years .so if you file, you won’t be able to discharge your debts again for eight years, even if you find yourself in a worse financial situation..

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