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December 1, 2008  

Do You Know The Difference Between Debt Settlement and Debt Consolidation?

If you are like most people, then the answer is no. Debt settlement and debt consolidation are both viable options for handling your debt but which one is most appropriate for you? The first step is realizing that you need help with your debt. Ask yourself, how did I get into this situation in the first place? Sometimes it can’t be helped. The loss of a job or unexpected medical problems can be the last straw for some people. Hardships of this nature can send your once manageable debts spinning out of control. If the circumstances above apply to you, then debt settlement may be your best option. So what is debt settlement?

While debt consolidation is simply the restructuring of your original debt, debt settlement is the process of negotiating with creditors to settle for less than owed. Successful negotiations with creditors require a legitimate financial hardship (loss of job, medical problems, divorce etc). Instead of paying back the full debt amount, you’ll probably end up paying only 35-50 percent of what you currently owe.

Debt settlement doesn’t happen overnight. Settlement can take at least 6 months or more to reach an agreeable settlement. Most quality debt settlement programs will take 24-36 months to settle all the debts you’ve enrolled.

Once enrolled in a debt settlement program, you will set aside a monthly payment that works best for you. Since creditors make their money from incoming payments and interest, they will only consider settlements on accounts that will or have already fallen behind. During this time, your debt settlement company is negotiating with your creditors to reduce the actual amount that you owe. When enough money has accumulated in your settlement fund to settle an account, the account can be settled for about 35-50% of your original debt. This process will be repeated until all accounts are settled.

Debt consolidation, on the other hand, is the practice of combining multiple monthly debt payments into a single monthly payment. Sometimes a single payment can be filtered through a third party who then distributes payments to multiple creditors. This often is done with a consumer credit counseling (CCC) agency. These programs can take as long as 5-7 years to complete. The CCC company may be able to lower your credit card’s interest rates to a pre-determined rate agreed upon with the creditors. However, if you complete the CCC program, you would still have actually paid more than what you originally owed.

Both debt settlement and debt consolidation programs, like any other debt resolution program, can have a negative effect on your credit rating temporarily. In most cases, your credit rating would have already been affected by your inability to pay the debt.

Your focus should be on getting out of debt quickly rather than worrying about the temporary affects to your credit score.

Now that you know the difference between debt settlement and debt consolidation, what decision will you make: consolidation or settling the debt? If you wish to settle your debt, and can qualify, at no cost or obligation to you, you should consider Debt Shield.

At Debt Shield, they negotiate with creditors to reduce the actual balances that you owe. If you are experiencing legitimate financial hardship, and have $10,000 or more in unsecured debt, their debt settlement program will save you time & money!

How much time? Their average client is out of debt in less than 30 months!
How much money? Their average settlement is 37% of the balance owed!

To see what they can do for you, simply fill out the form to schedule a totally FREE Teleconference with one of their exceptional debt consultants. The call is FREE and there is No Obligation.