This question is not easily answered by a mere yes or no.  A lot of aspects need to be considered before a debtor is able to declare which one is the better choice for him.  Basically, debt settlement and debt consolidation are two methods of getting out of one’s debt.  Both possess features that will allow for easier payment on the part of the borrower.  The two however, differ in the manner by which debts are paid.  And each one has their own pros and cons and will need to be thoroughly understood for its advantages to be truly appreciated and used.

    Debt settlement and debt consolidation actually poses a dilemma for borrowers.  Many are not sure which one to adopt when paying for their debts.  Both are good alternatives to bankruptcy.  These are borrower’s ways to having that precious peace of mind after financial obligations are finally settled with the use of any of these methods.  However, which method should they use?

    The foremost thing that needs to be done is for the debtor to evaluate his financial situation and decide from there which method is more applicable and useful in his situation and which one can give him faster and easier relief from unwanted financial stress.  One thing to consider when choosing between consolidation and settlement is the most money that could be saved when you will choose one over the other.  The interest rate is one gauge for this purpose.  Basically, debt consolidation will be able to give the borrower a lower interest rate.  With this method, all financial obligations are consolidated into one loan only at a lower interest rate compared to other types of loans.  Though this amounts to a big savings, the total amount borrowed is not reduced.  The principal amount remains but was just consolidated to form into one big loan.  Additionally, debt consolidation can prove to be useful in terms of taxes.

On the other hand, debt settlement allows for the borrowers principal amount to be reduced considerably, say only 50% to 70% of the principal amount is left to be paid by the borrower.  A company is usually involved in these types of transactions and the settlement company will be the one to effect the agreed upon settlement amount.  As a result, the borrower will be paying a much smaller amount of debt.

Given the foregoing facts, it is apparent that both methods have their own advantages.  However, just as there are many advantages, not so far behind are the disadvantages.  Both have their own share of this and whichever disadvantages have more weight than the other will rely on the borrower’s own situation.

    To better illustrate, below are a more concise differentiation of the pros and cons of debt settlement and debt consolidation.  Remember that both are designed to reduce and eventually terminate debts.  Both also have their own effects on the future financial options of the borrower as well as with his credit score.  It is best to first educate oneself before making use of either one f the two options.

    In terms of benefits, debt settlement will allow part of your debt to be totally wiped out.  This means instant relief on the monthly budget.  The remaining debt becomes a lot more manageable.  This will also allow you to rebuild your credit from this point.  You may not manage you credit better as a result of this and refrain from juggling high debt loads and late payments.

In terms of disadvantages, debt settlement will create a big dent on your credit score.  It is sort of like a foreclosure on your debt that will give you a very low score in your credit record.  You may of course improve this score but meanwhile, you will have to work with sub-prime lenders for the next two years.  This also being a write off, the borrower will have to deal with tax implications.  Debt settlement is seen by the IRS as something like a cash gift or income and additional taxes will have to be paid depending on which state you are in.

    As for the benefits derived from debt consolidation, the foremost is the lower interest rates.  You are assisted by this method to get out of your debt by consolidating all your loans and turning it into one big loan but with a much lower interest rate.  A company usually negotiates with your creditors for the lower rates.  You will then make one monthly payment to the company responsible for your debt consolidation who will in turn handle your account payments.  Additionally, they will be handling all other necessary paperwork such as the closing of accounts and cancellation fees.  Consolidated debts are usually paid in five years or less.
    The disadvantage of debt consolidation is that no reduction in the principal amount was really made.  You may have gained lower interest rtes but the amount of principal is still full and you will have to pay all of it.  It may have less impact on your credit record but most lenders not extend any credit to you until they can see that you have made regular payments on your loan.  You need to also make sure that the consolidation company is indeed making timely payments on your behalf.
    Given the aforementioned facts, choosing only one method over another is not very easy.  There is in fact no perfect solution to get out of one’s debt.  Both methods have their own advantages as well as disadvantages.  You cannot really say if one is better than the other.  It may be better to consider each one’s use on a case to case basis or depending on your particular situation and preferences.  One person may prefer to have lower interest rates and one may want to have a reduced amount of loan to be paid.  It is therefore upon the borrower’s decision whether to make use of debt consolidation or debt settlement.  This way, when you choose one and were not satisfied with your choice, you have only yourself to blame.  If however you want to be surer, you may get the advice of financial experts.