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Debt Settlement or Debt Consolidation: Which One is Right for You?

Written by Banks Editorial Team

Updated April 22, 2021​

2 min. read​

Do you know if debt settlement or debt consolidation is the right solution for you? Do you know the differences when it comes to the money owed in your maxed-out accounts? Not everyone is a financial expert, which means making classifications and distinctions between debt solutions is important if you really want to understand your debt and how you can better control it today. Or if you can save some money by refinancing your debt with a loan with more favorable terms.

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Debt Settlement or Debt Consolidation

If you’re someone riddled with debt, unsure of where to go or whom to turn to, stick around for our breakdown on the pros and cons of both debt settlement and debt consolidation and make an informed decision to see whether debt settlement or debt consolidation is best for your individual financial situation

Debt Settlement

Debt settlement is the process of negotiating with creditors to settle a debt for less than what is owed. This method is most commonly used to settle a large debt with a single creditor, but can be applied to multiple creditors as well.

  • PROS: You are potentially paying less, far less in some cases, than you originally owed in the first place. Debt settlement has no boundaries or textbook rules, providing you with total freedom to negotiate a debt level that you feel is fair. It’s always worth a shot, as you have nothing to lose by considering this option.
  • CONS: This is a risky and a non-guaranteed way to approach your debt. Additionally, in order to be successful at it, you have to come with considerable negotiation and manipulation skills, able to cut out of the conversation and get the lender to say exactly what you want to hear. Lenders are used to these types of tricks, and will not bow to you if you don’t go in there, guns loaded. Lastly, it can negatively impact your credit score, as well as drag on for up to 36-months before you see results.

Debt Consolidation

Debt consolidation is the process of combining debts from several creditors, taking out a single loan to pay them all off, and accumulating a lower interest rate and lower monthly payment with the one consolidated account. Consumers who want to keep up with bills for multiple credit cards and other unsecured debts pursue this kind of debt management.

  • PROS: You are simplifying the debt payment process with debt consolidation. You make one payment to one lender with one deadline every month, in place of multiple payments to multiple creditors with deadlines that are all over the place. Cost savings are obvious, with one singular, lowered interest rate per month.
  • CONS: The debt is not forgiven or reduced. It can take anywhere between 2 to 5 years for debt consolidation to really start working on your account. Additionally, hidden fees are applied to balance transfers. Companies sometimes make them up, on the spot, if they know what you are up to.

Debt Repair

Regardless of how you approach your debt, debt settlement and consolidation is definitely something you want to pursue immediately if your debt is beginning to control your life. Consider your personal financial situation before deciding on which option is right for you.

In some cases, a combination of both can work swimmingly moving forward.

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