What is the difference between debt settlement and debt consolidation?

Debt settlement and debt consolidation are two separate strategies for managing consumer debt. The main differences between the two are how they manage the debt, their cost, and their overall impact on credit. Debt settlement is an agreement made with a lender or collection agency to reduce the size of the debt. In this situation, the creditor agrees to accept a one-time payment that is less than the total amount owed. This option is usually used when a consumer can no longer keep up with the payments due and is facing a financial crisis. However, this does have a negative impact on credit, as reported to the credit bureaus. Debt consolidation is a process of combining multiple debts into one payment. With this option, the debt is still paid off in full, but the consumer is able to reduce their monthly payments, lower their interest rates, and keep interest charges from piling up. This is typically done by taking out a loan to pay off the existing debts, or by using a combination of credit cards and a personal loan. Unlike debt settlement, debt consolidation does not have a negative impact on a consumer’s credit score. On the whole, debt settlement is a riskier option since it relies on the creditor’s willingness to negotiate and reduce the balance owed. The negative impact to the credit score can have a lasting effect for years. However, debt consolidation is usually a more desirable option if the consumer can qualify for a loan or other debt consolidation options, as it has no negative impact on the credit score.

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What is the difference between debt settlement and debt consolidation?

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