Debt settlement vs debt consolidation is a very important financial question these days.  People who are buried in debt have a number of possible options.  Many of these are very distasteful, especially that of bankruptcy.  However, two of them, namely debt settlement and debt consolidation, are widely considered to be very good ideas for those in such a situation.  The question of debt settlement vs debt consolidation, and which one any given person should use, is a very hard one.  Before a person makes a decision on debt settlement vs debt consolidation, they should educate themselves.  This guide is created to help a person make that decision.

Debt consolidation is the first option, and probably the more popular of the two.  Debt consolidation is the process of refinancing all of your debt so that a single company owns it.  In other words, a person who does this will take out another loan that will cover all of their debt, which allows for a single monthly payment.  This is an excellent option in a number of circumstances.  First, this is a good option for a person who has bad credit because they can't keep track of all of their debts, and so forget to make certain payments on time.  It is also a good option for a person who already intended to refinance but can't do so because they have poor credit.

Debt consolidation companies typically are used to dealing with people who have poor credit, which means that they are likely to accept you regardless of your credit score.  The downside to this is that they still are in the business of making money, so they might give you a high interest rate, but because they will have a vested interest in you doing well, it probably won't be too high to deal with.  And it is definitely going to be lower than most credit card interest rates that you have to deal with, which is the worst culprit for hurting people's financial standing.  Debt consolidation companies also frequently offer additional services, including credit counseling and debt settlement, (see the next paragraph) to anybody who refinances through them.  A legitimate debt consolidation company will charge nothing in addition to the interest that they receive.

Debt consolidation can be either good or bad for your credit, but is more likely to be good. Pure debt consolidation (without the extra services) will normally help your financial standing, even if only because it shows that you are trying to do something to pay off your creditors. You will be helped by reducing the number of lines of credit that you have open, but otherwise it will probably stay the same, as your debt to income ratio is staying the same. Refinancing too many times can hurt your credit score, but the ease with which you will, presumably, be able to pay off your debt after consolidation will help it. Debt counseling also might be good for you. See below for a description of what a debt settlement service that a consolidation company might offer can do to your credit.

Debt settlement is an entirely different proposition. This is the process of hiring somebody (typically for a percentage of what they save you) to negotiate with your creditors. This person can be anybody from a private lawyer to a firm that specializes in debt settlement, but the possible outcome is always the same. the idea is to negotiate down the amount of debt that you owe, and convince your creditors to settle for less. This is typically done by convincing your creditors that you are near bankruptcy, in which case they would receive nothing. This is frequently very successful, reducing your debt by as much as 60%.

Unfortunately, debt settlement is very bad for your credit score. Every settled debt will show up on your credit report as such, and each one will cause some harm to your credit score, as it shows that you are unable to pay off a debt. However, because your debt to income ratio is going down, in certain situations it might not be as bad as it initially looked for your credit. A debt consolidation company could probably help you to figure out what your specific outcome would be. If you are in bad enough shape, and know you won't be able to pay off your debt in the future, then that might not be a big enough reason to not go through this process anyway. This might be involved in credit counseling, which many debt settlement companies offer, similar to the way that debt consolidation companies do so.

I hope that this guide has helped you to think about the many complexities in your debt consolidation vs debt settlement decision.