Credit Consolidation Programs Vs Debt Settlement Services

The two most widely used debt relief methods are the credit consolidation programs and the debt settlement services. In any credit counseling session, the counselors actually ask the consumers to go for any one of the two. Which one will be the best option for you will depend on the financial condition that you have and also on the ethics that you hold. Financial condition is somewhat self explanatory but what about the ethics? There are a class of people who think that the paying the whole of the debt is more ethical. While the other group thinks that there is nothing wrong in wiping out a certain percentage of the debts. This is because of the fact that the creditors are not ethical in charging high interest and also there are a number of hidden charges as well. So, the one you will opt for will be at your soul discretion.

From the financial aspect, you will need a steady income source for both the methods. However, greater extent of income stability is required for the method of consolidation. Let us have a look at both the methods.

Consolidation: Here the professional consolidator will negotiate with the creditors to attain a reduction in the interest rate and will also ask for elimination of some of costs like insurance charges, late fee etc. Once attained, the creditors will re-amortize the loans and will create a new repayment schedule. The consumers will have to then pay one monthly installment to the consolidator. It will be the duty of the consolidator to distribute the money among the different creditors.

Settlement: In this method the professional negotiator will negotiate with the creditor for earning a forgiveness for at least 50% of the dues and if possible, even more. The creditor will be forced to do that due to the threat of bankruptcy. However, the negotiator also promises that the remaining amount of the money will be paid in bulk.

As evident from the two, the consumers will have to pay to the creditors in each case. There will be some liability left over even after negotiation and the amount of liability is more in case of consolidation. Hence, a steady source of income will be required. In both the methods, the credit score remains intact. However, for the help of the consumers, it is worth saying that consolidation works best in case the consumer has a large number of credit cards. Settlement is considered good when there are only a few cards and the loan amounts collectively exceed $10k. It is the duty of the credit counselor to suggest the method but again, the consumer will have the final say based on the ethics and financial condition.