How good is debt settlement over debt consolidation? Is it a more reliable method?

Comparing debt settlement and debt consolidation is like comparing apples and orangutans—they are totally different things. That’s why there is no simple answer to the question of how good is debt settlement over debt consolidation.

Debt settlement

Debt settlement is negotiating with a creditor, to get the creditor to accept less than full payment as payment in full of the debt; for example, getting a credit card company to accept $6,000 as payment in full of a $15,000 debt is debt settlement.

Pro: When it works, you reduce how much you owe.

Con: Completely voluntary on the creditor’s part, as to whether they will agree; also, will be reflected negatively on the debtor’s credit report (a debt is not being paid in full).

Debt consolidation

A new loan is taken out to pay off one or more older loans, replacing old debt with new. It makes sense when the new loan is at a lower interest rate; or the payment is stretched out over a longer term, reducing the monthly amount; and also may simply someone’s debt structure, by replacing multiple debts with a single one.

Pro: Nobody else’s agreement or approval is needed for this—if the debtor can get the new loan, he or she can consolidate; may reduce monthly payments and simply debt. No negative credit report impact.

Con: Doesn’t reduce how much is owed; if the time to repay is extended, it can even increase the total amount that will be paid.

So again, debt settlement and debt consolidation are two wholly different things. It can be said about debt consolidation that it is a more reliable method in the sense that the debtor does not need to convince the creditor of anything or get the creditor to agree to consolidation; the debtor just needs to qualify for the consolidating loan.

A lawyer who is experienced in helping people who are in financial distress or underwater on their debts can help you evaluate all your options—including, for example, bankruptcy as well as debt settlement and debt consolidation—to find the one that is right for you.