What is the Difference Between Settlement
and Consolidation?
There are many people who are looking for ways of streamlining
their debt. They have numerous credit cards or medical bills
that they don’t know how to handle – so they start trying to
find ways of making the process easier for all involved. This is
where the confusion comes in though as many don’t understand the
difference between a debt consolidation and a debt settlement.
Some companies use the term interchangeably which is why it
causes so much confusion. For some debt consolidation companies
this is a process that involves settling the debts, or paying
less than what you owed, and then lumping what is left into one
debt consolidation loan. This then leaves you with the one
payment which is substantially less than what you owed before
because they forgave part of your loans.
But this is not always what it means. Sometimes a debt
consolidation is simply that. You get a debt consolidation loan
for the exact amount of money that you owe, and you use the
money from the loan to pay back all of your other debts. Now you
only owe the one monthly payment, but it consists of all of
those other debts that you had spread out over the various
cards.
A straight debt settlement is simply talking to each of your
credit card companies, or medical bill companies, etc. and
seeing how much of the debt that you owe they are willing to
forgive. This leaves you paying off each of them to the tune of
a lesser amount, but it also leaves a black mark on your credit
report. If you have the money to pay back the loans that you
have taken out, you are better off getting a debt consolidation
and paying the full price for everything instead of paying less.
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