Debt settlement and debt consolidation are two of several ways to resolve your financial difficulty. Although both aim to help you get rid of your debts, they work differently.
Debt settlement or debt elimination is the quickest way of settling debt (other than bankruptcy, of course, though this is a misconception because bankruptcy is not an easy way out).
Debt settlement is the method of negotiating with your credit card companies in order to greatly reduce the total balance of your debt. It is important for you to understand that drastically reducing the balance of your debt and not just reducing your interest rate, is the secret to getting out of debt fast.
With debt settlement, your monthly payment can be reduced up to 60%.Your total debt can be paid off much faster. You may be debt free in about 12-48 months.
And debt consolidation on the other hand, is combining all your debt into one account. This could be done through a secured or unsecured loan.
Some people who are having trouble settling their enormous debts consolidate all their credit cards into one card with the lowest rate. If you decide to go this route, make sure you read the fine print. There may be unfavorable terms.
Consolidating your debt can help you settle your debts but it will take you longer than debt settlement. And it is a tedious process you have to undertake especially if you have low credit rating. The pay-off time and total cost is the big difference of debt settlement vs debt consolidation.
Due to the economy, It is hard to find a creditor that is willing to trust you or work with you in settling your debts. In case you find one, they may charge you with a high interest rate.
Though you will pay this loan with a low monthly payment that will be beneficial to you, you will be paying it for a longer period. The interest that the loan will accumulate may double up your principal balance.
But if you have good credit rating and debt consolidation is your choice of debt settlement, take out a loan with a low-interest rate, and a low monthly payment. Focus your search for a lender at a bank, not a mortgage broker. Interest rates and closing costs are typically much lower with a bank.