Debt settlement is a legal solution for consumers who are finding it hard to pay their debts and seeking an alternative to bankruptcy.
It is the fastest and least expensive way and easiest way to get out of debt.
There are two slightly different ways to achieve debt settlement.
The first is where you or a third party company, negotiates with your creditor(s) to accept a large lump sum payment which is less than your total outstanding debt for the total forgiveness of the remaining debt.
This is fine for people who can get their hands on a large lump sum.
Alternatively the debt settlement companies negotiate for the credit companies to accept a reasonable payment program from the debtor in return for reductions in total debt.
Debt settlement can be the right option for unsecured debts like the credit card dues or any unpaid bills but beware, it may have a negative impact on your credit rating.
In contrast debt consolidation is a way to help your credit.
Credit card debt has plagued US consumers during the last few years and it is turning into an extremely serious issue as global economies continue to soften.
Credit card companies have long seduced customers with "buy now, pay later" ethos hoping customers would pay off at least a minimum amount month after month without ever totally clearing their debt.
However, as cash strapped consumers are increasingly turning to their credit cards to pay for everyday items, the incidence of credit card debt is back firing on the credit companies.
And this is where debt consolidation comes in.
Debt consolidation is the process of taking out one loan, usually secured on a significant asset such as your house, to pay off many others, such as multiple credit cards.
And because total monthly amount repayable is lower than for the multiple loans, debt consolidation is a great way to get back on the road to financial recovery.
However, there are risks.
You must be certain you will be able to repay the monthly installments for the debt consolidation loan without defaulting, otherwise you will lose your secured asset, and if your house is secured on the loan, then this means you will lose your home.
Debt settlement and consolidation are great ways to manage your debt problem without filing for bankruptcy.
However, debt settlement companies may charge an account administration fee for their services, so check around.
So if you're thinking about using a debt consolidation or debt settlement service to help you get out of debt faster and save money on your monthly payments, make sure you do your homework before proceeding.