Debt Settlement vs Debt Consolidation

Debt settlement versus debt consolidation is a dilemma that individuals often face when evaluating options for seeking financial freedom. These two alternatives to bankruptcy can help an individual find peace after dealing with the suffocating grip that large financial obligations have placed upon life. It is important for a consumer to evaluate the current financial situation in order to determine if settlement or consolidation will help to achieve the freedom from financial stress that is being sought.

Saving money on current bills will be a common reason to choose one financial program over the other. This can often be accomplished with lower interest rates. When looking at debt settlement versus debt consolidation, it is important to note that consolidating takes all current obligations and rolls them into one large loan at a lesser interest rate than most creditors charge. After obtaining the debt consolidation financing, the consumer will use that money to pay off creditors and then pay one monthly fee to the bank that provided the consolidation loan. The result is hundreds if not thousands of dollars in interest savings, but no actual reduction in the principal amount. Sometimes, reducing the principal is more important than receiving a lower interest rate. While consolidating does save in interest charges, it does not reduce the principal that is owed. When considering both options, settling actually involves a company working with creditors to reduce the amount that is owed. Settlement companies work with creditors to get them to agree to a repayment of 50-70% of the consumers financial obligations. The end result is a smaller amount of debt.

Each financial strategy has significant advantages for the consumer to consider. When comparing debt settlement versus debt consolidation it is important to view all important features. With the option to settle, the consumer is often able to actually reduce the amount of money that is owed, but the effect on a credit rating is often negative since settlement companies advise the individual to suspend payments to creditors while they negotiate on the consumers behalf. This negotiation process can take quite some time, with a creditor reporting that no payments have been made during the entire process. Additionally, consolidation often requires that the consumer have a valuable asset, such as a home, to use to secure a loan. For those that do not own their own homes, settlement might be a better option.

Consolidation also has advantages for individuals in need of financial assistance. For one, the convenience of paying only one amount is much less stressful to manage than staying on top of numerous obligations. Also, the interest savings on a lower interest loan can be substantial and can be tax deductible. Finally, consolidation can be less harmful to a consumers credit score since the sum of the loan is used to pay off creditors and there are no delinquent payments being reported to credit bureaus as can be the case with settlement.

Deciphering these choices and determining the best option can be a difficult task. Reviewing debt settlement versus debt consolidation will require research and significant time spent on comparing the options. Many credit counseling firms offer free consultations to help the consumer evaluate their financial situation. It is important to be mindful that these agents often have incentives to steer consumers toward their services. An agents potential profit or financial gains may lead them to be dishonest with prospective clients. "Even so ye also outwardly appear righteous unto men, but within ye are full of hypocrisy and iniquity" (Matthew 23:28).

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