The Difference Between Debt Settlement And Debt Consolidation

by Leon on February 27, 2013

solutions that can help you reduce yourdebtThe problem of debt is getting more and more serious in many places all over the world. Here at home, as well as in foreign lands, personal debt in its many forms is becoming increasingly common and a harrowing burden. Thousands of dollars in debt to credit providers, money lenders and other financial institutions are dragging people down every day. In managing a debt burden, two common courses of action are settlement and consolidation. These two processes are not entirely understood by many average people, but knowing about options for debt management can help greatly in reducing the individual’s debt burden.

Debt settlement is an ideal solution for most people living under the shadow of personal debt, but it is not the only option–nor is it the most common one. When an individual settles a debt, they are usually being let out of some portion of the amount owed. An individual who achieves a debt settlement may, for example, come to an arrangement in which half of the outstanding debt is paid off, while the remainder is absorbed by the creditor. These kinds of deals usually require careful negotiation, and may not be an option for all. If creditors stand to lose money on a debt settlement, they will be hesitant and resistant to the option.

Debt consolidation is a more common and accessible option for many individuals. A consolidation of debt is especially beneficial when an individual has several outstanding debts with different lenders. Because most loans, credit cards and other debts require monthly payments, a single person may wind up unable to pay every bill. One of the debt-holders’ options in this case is to consolidate their debts. By taking out a loan from another lender, the individual can pay off all of his or her debts in one fell swoop and reduce their number of monthly payments to one.

Naturally, consolidation loans are typically taken by people who have trouble managing their debts. For this reason, individuals with less than stellar credit are not as disadvantaged when shopping for consolidation options. Debt consolidation lenders are often more lenient with regards to credit requirements than other lenders due to the nature of their business. Poor credit doesn’t have to be an obstacle to finding a debt consolidation loan–in many cases, the lenders are already expecting it. This debt management option is often more popular than debt settlement due to its more accessible and flexible nature.

The first step to getting out of debt is understanding the options that are available for debt management. Smart financial choices will help to ease the strain of heavy debt, and individuals need to know what their options are when they start looking for solutions. Debt settlement can eliminate some portion of the outstanding debt if a large portion is paid off right away. This is an attractive option in the long run, but it may not work for every debt holder, or every lender. Debt consolidation, a more realistic solution for most, involves taking out an additional loan to pay off several outstanding debts. The better option will vary depending on the individual’s needs, but every debt holder should understand the forces at work in debt management.

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