Consolidation vs. Settlement

What is the difference between the two? Which one is better to use if you have good credit?
Thanks

Hi duanejenna

Welcome to the forums.

debt consolidation and debt settlement are the two options that are available to you if you are looking for solving your debt related problems. You can use these services when the monthly bills have gone unreasonably higher and it is becoming very difficult to be paid.

Debt Consolidation

In the debt consolidation programs, the consultant makes prearranged debt repayment plans with most credit card and collection companies. After signing in the program, you will be offered lower monthly payments at lower rate of interest that has been arranged with your creditor.

A considerable portion of your money is saved each month through this program because this monthly payment is lower than what the credit card companies' offer to you.

After enrolling in the debt consolidation program, all the harassing calls of the creditors and the collection agents are stopped. They will not call you anymore until and unless you miss the new monthly payment in this program.

All the credit card accounts that are included in this program will be frozen or closed with the intention that you don't build up new debt.

This program is beneficial to you if you have high interest rates or have high credit card debts which are becoming very difficult to be managed. This program serves to make only one payment to all the debts that are included in the program.

http://www.debtconsolidationcare.com/benefits.html

Debt Settlement.

This settlement is also known as debt negotiation. Those people who find tough to handle the debt consolidation programs enroll for such programs. A person who cant afford to pay the minimum payments of the debt consolidation program or cant afford to pay the bills of the last three months takes the services of the debt settlement0 program for solving the debt and credit related problems.

One benefit of such a program is that you don't have to make payments to your creditors instantly. The company with whom you have enrolled takes the monthly payments from you and keeps it in either your account or their account. You keep contributing towards your debt in easy installments.

During this time when you are contributing towards your debt in easy installments, the debt negotiation company negotiates with your creditors for a lower payoff of around 40-50% of your total amount of debt. Once the creditors agree to it, the debt negotiation company pays off the whole amount to your creditors.

One main thing that you should keep in your mind is that debt settlement program hurts your credit score because it is just the last step before filing for bankruptcy. But the consultants working in the debt negotiation company tries to protect the interest of the consumers by asking the creditors to report their accounts as paid in full to the credit bureaus. The credit scores are hurt if the accounts are shown as Settled in the credit report. This negative remark stays in the credit report for as long as 7 years.

There are some companies which offer credit repair packages to the consumers so that the negative remarks caused by the debt negotiation program are removed from the credit report.

http://www.debtconsolidationcare.com...ettlement.html

Now that you have an idea what debt consolidation versus debt negotiation is choose which one will work best for solving debt and credit problems for you.

http://www.debtconsolidationcare.com/decide.html

Do let me know if you have any queries

Regards
Roxette

That's a good explanation roxette. It cleared alot of confusions that I had. By the term 'debt consolidation' you meant 'debt consolidation loan' right?

Sandra
NC

Sandra, welcome to forums

Let me put my thoughts here.

debt consolidation Loan is a typical low interest long term loan. It can cover your total debt amount – secured or unsecured. Once you have this loan, you can satisfy all your creditors with this money. Then you have only one loan to one creditor. Hence no more pain to remember multiple payment dates and the feeling of owing to one company is refreshing too. However, you should consider few factors before going for a debt consolidation loan:

• A new loan to pay off your present debts is not a good idea; it will put you in debts for long days.
  
• Though the rate of interest is low, however paying low interest for so many days will extract huge funds out of your pocket. For example, if it asks you to pay $50 as interest per month, you might think it to be cheap. But think $50 per month for 20 years turns to: $50 x 12 x 20 = $12,000
  
• debt consolidation loan companies often ask for collateral. So if you put your home as a security and by chance default on it, you lose your home.

That was all from my part...looking forward to hear more from others.

So, that means that I have to have a house as collateral to qualify for debt consolidation? As for debt settlement, why does that hurt your credit scores? I thought it should have help your credit scores because it already get paid, right? Better than delinquent, right? Let say, I've just negotiated with my CA today and he settled for 10% off and I put 60% down payment today and make a small monthly payment for the next 16 months. Is that what you call Debt settlment? The difference is that I paid instantly 60% of the debt and will pay off less than 1.5 year. Does that hurt my credit scores? Hmm.... I don't understand: I'm paying part of it NOW and it hurts my credit scores?
Thanks

Calvin, you are getting mixed with 'debt consolidation' program and 'debt consolidation loan'. You need to keep something as security for a debt consolidation loan, not for a debt consolidation program.

Your payments towards the accounts count towards improving your credit worthiness. You can choose any of the programs for paying them. In general ratings, debt consolidation takes the higher ranking in comparison to a settlement program. The reason is that in a settlement program, the debt is reduced to half of the total amount. Whereas in a consolidation program, the debt waives off the late payment fees and lowers the interest rates. Thus you pay more in the consolidation program than in the settlement program. If you opt for a settlement program, the lenders think that you were not able to pay the full amount and got it 'settled'. They will use their own analysis to determine extending credit. Remember to have all your accounts paid off at the priority. If you have a clean credit history, any negative remark in the credit file is overlooked by the lenders.

Wow, I didn't know that there's a difference between them! Thanks for clarifying! So in my case, I didn't consolidate anything, I have one delinquent debt that went to CA and now I settled it like I said on the above post (I paid 60% of it now with monthly payments for the next 16 months.) Hope that would improve my credit scores?
Thanks again!

Oops! That was me that just the message above!

Definitely, any paid account will put a positive impact in the credit file. Make sure that your company updates your file with the bureaus. Some of them take long time to reach the bureaus.

Since I've just started the payment program, I'm pretty sure they won't do anything until I make the final payment of the debt. But that's ok. It's a relief for me to finally settle this and even though if I can pay more everymonth to make it over faster but I won't do so because I do exactly what said on the settlement agreement and since I won't be charge for any interest for the next year, I even want it to stretch it out as long as I could because why pay them off earlier, right? I'll just have to remember to send them the money on time.

I have 20,000 in unsecured debt and am in danger of being evicted because I can't make my current minimum payments and pay the rent. I have managed to get caught up on the rent for now, but will be right back in this situation next month with no way out. And the payment plan of the consolidation company I have met with, Greenpath, is too high. It won't help.

So I am leaning heavily towards settlement, but am terrified of calls from creditors and collection agencies at work.

Can anyone in a settlement program give me an idea of how bad the calls at work will be?

Big Ed,
I too am in a settlement company now 9 months into the program. Your settlement company you chose should notifiy your creditors and will inform them that you are in their program. All the calls will not totally stop, but the majority did for me. I have probably two calls a month at work. They don't seem to call that often when you tell them you are not allowed to receive calls at work. They of course do not like being told that, but oh well! I have even had my home phone number changed once.

Good luck.

How did you decide on a settlement company?

eustet

Read this page from the top and you will get an overview about how each of the programs work. Talk to a debt counselor who will guide you and budget your payment plans. If you are able to afford the monthly payments, give consolidation the priority. Otherwise, a settlement plan will also help you in shrinking all your past debts.

http://www.debtconsolidationcare.com...ettlement.html

eustet,

Feel free to register with the forums, it's fast, free, and easy. If you put in your information, you should receive a call from a credit counselor within a couple of days. I did this back in December when I was knee deep in payday loans. The company that contacted me was Superior Debt Services but they do not settle with payday loans. I found a consolidation company that did but I signed up with Superior in late March to settle with my other creditors. I am now out of the payday loan cycle so I can focus on my other debt. Superior is a great settlement company in my opinion. You can do a search in the forums for more information on them. They also have a satisfactory record with the BBB which is very important to check out on any company that you might go with down the road. They soon will settle on my first debt and I'm ecstatic

i'm thinking of debt settlement i pay all my bills on time 52000.00 in debt not sure on what to do