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Debt Settlement vs Debt Consolidation-Which is Better?

in Debt Management Tips

Debt settlement vs debt consolidation-which is better? This is a question many people are wondering. The truth is, both of these options do work. Which you choose really depends on your situation. Here is an in depth description of each:

#1) Debt Consolidation

This option is for people who have the wherewithal to pay off your debts. The problem is, they have too many to keep track of. In this instance, they would hire a debt consolidation company that would pay your creditors for them. Then, their only job is to pay that firm. They in turn make sure the proper amounts get to the right creditors.

Not only does this keep your finances well organized, it also minimizes the risk of making a late payment. If you have multiple financing accounts open, it can be hard to make every payment by the correct date. Since even one late payment can knock 50-100 points off your credit score, this can make a huge difference.

#2) Debt Settlement

Consolidation is more for those who cannot afford their current monthly payments. They are either in default now, or will be shortly. In this instance, they will attempt to negotiate with their creditors to either have the interest rates lowered, or the total balance reduced. The ultimate goal is generally to get lower monthly payments.

Does either of these options impact your FICO score?

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Yes, they both do. However, settlement is far worse, because you are essentially admitting you cannot make your payments. With consolidation, you generally are still attempting to pay the creditors the original agreed upon amounts.
So the debt settlement vs debt consolidation debate rages on. The truth is, both of them have their places. Which you choose really depends on where you are at financially.

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