What is the difference between debt consolidation and debt settlement?

Answer 1

Debt Consolidation - is when you enroll in a program called "The Debt Management Program". Credit Counseling Organizations have these programs available to consumers that are anywhere from 30-60 days late on their monthly debts, or collection accounts. Not including a mortgage, car loan, nor student loan. The program will allow you to enroll all other debts and reduce your payment anywhere from 50-75% less then what you are paying now. This program will give you benefits like: reducing your current interest as low as 0% (depending on the guidlines for the creditor). The Credit Counselor will explain the details to you once you enroll or at least consider this program. Debt Settlement - is for accounts that are in collections. My recommendation is Google "How to Settle Debts". Read all that you can, there is no need for you to give your money to a company in order to settle your debts when you can do this yourself. You can settle on a debt for as little as .10 cents on the dollar or 30% of your balance. Make sure you get the settlement agreement in writing before you make that payment. Once you make that payment ask for another letter stating that the account was "Settled in Full", even though is was settled for less. Also request for the creditor or collection agency to update your credit report with all three bureaus stating this fact. You will also want to sent a letter of explanation to the bureaus just in case the creditor or collection agency does not do this for you. This will help you get out of debt, and start fresh with your credit report. Debt consolidation : It is the process of combining many debts into a single payment, usually resulting in lower monthly payments. Often debt consolidation involves many unsecured loans (such as credit card bills) into a single payment but with collateral backing it up. This is then referred to a secured loan. Debt Settlement : Debt settlement can severely damage your credit. Many creditors will immediately forward your account to their legal department for collections and clients may find themselves faced with judgments, liens, and even garnishments. Like bankruptcy, debt settlement may have a lasting impact on your credit report which will affect your ability to get credit at favorable interest rates.