Debt consolidation and debt negotiation are two main options available to help you with your debt problem. To help you decide which option is right for you, let’s look at the basic differences between them.

Debt Consolidation

Debt consolidation services have special arrangements for debt repayment with most creditors and collection agencies. When you consolidate your debts with a debt consolidation service you will be offered a new monthly payment option with a lower interest rate than what you have been paying before. This lower payment will save you money every month and is often considered the best way to consolidate debt.

Another benefit of this type of debt consolidation plan is you will not be harassed by creditors or collection agencies as long as you are able to make the new payments.

A disadvantage with this type of debt consolidation is you will have to cancel all the credit cards that are being consolidated with this plan. You may also have to pay some administration fees which could range from $10-$50 a month.

However the positives outweigh the negatives and a debt consolidation program is very helpful if you use it to consolidate many high interest credit cards.

Debt Negotiation

If you think you can’t afford to make the monthly payments offered to you by a debt consolidation plan, or you haven’t been able to make monthly payments to your creditors then debt negotiation (also called debt settlement) is your next best step to solving your credit problem.

The advantage of a debt negotiation program is you can eventually settle for 40%-50% of the total amount you owed.

This type of program works as follows. Instead of making payments to your creditor you will save that money in a special account set up specifically for this program. During this time the debt negotiation company will negotiate with your creditors for a lower payoff amount. Once an agreement is reached between them, the money you have been saving will be used to pay your creditors.

A disadvantage to a debt negotiation program is it can hurt your credit score while you are in the program. However, most debt negotiators will require the creditor to mark your credit report as “paid in full” once your account has been settled.

These are the basic differences between debt negotiation and debt consolidation. It is up to you to decide which one will benefit you best. Debt consolidation however should be your first choice.

Posted in Debt Consolidation