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

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.

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.

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.

Do let me know if you have any queries


Sub: #1 posted on Wed, 09/14/2005 - 10:14

roxette roxette

(Posts: 4009 | Credits: )

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?


Sub: #2 posted on Wed, 06/21/2006 - 01:53


Sandra, welcome to forums :D

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.

Sub: #3 posted on Wed, 06/21/2006 - 02:52

stella stella

(Posts: 488 | Credits: )

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?

Sub: #4 posted on Wed, 06/21/2006 - 18:46


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.

Sub: #5 posted on Wed, 06/21/2006 - 18:53

andyyoung andyyoung

(Posts: 451 | Credits: )

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!

Sub: #6 posted on Wed, 06/21/2006 - 19:33


Oops! That was me that just the message above! :)

Sub: #7 posted on Wed, 06/21/2006 - 19:43


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.

Sub: #8 posted on Thu, 06/22/2006 - 12:22

andyyoung andyyoung

(Posts: 451 | Credits: )

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.

Sub: #9 posted on Thu, 06/22/2006 - 16:46


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?

Sub: #10 posted on Thu, 06/22/2006 - 17:46

Big Ed Big Ed

(Posts: 19 | Credits: )

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