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Debt Settlement And Debt Consolidation – Which Is Better?

By Clyde Thornton

Both debt settlement and debt consolidation aim to help you reduce your debt. The difference is that debt settlement removes part of your loans while debt consolidation decreases the rates of your interest. There have been cases where debt settlement is the better option regardless of the fact that when it comes to credit score, debt consolidation has the least impact.

Decreased Debt

The goal of debt consolidation and debt settlement is help you decrease your debt. The amount of your loans can be reduced by allowing debt settlement services to negotiate with your creditors. For seven years the debt reduction will remain on your credit score.

There’s a 10 to 50% chance your debt can be decreased with the help of debt settlement services.

If you want to get the most out the program, then try paying off the rest of your debt immediately. If you don’t intend to use some of your accounts, then close them so you’ll have a better chance raising your credit score.

On the other hand, debt consolidation services uses low interest loans to pay off high interest debts. Home equity loans may have the lowest rates but you can still use personal loans. You can pay off the principal by making the same payments every month now that you have lower rates on your debt.

Implying Credit Score

Creditors seeing your reduced loans because of debt settlement is a bad impression on you. You are no longer suitable for conventional loans because of your dropped credit score. You can, however, try to apply for a sub-prime credit after a year has past. Applying for lower rate conventional loans is possible after a few years of good credit habits.

If you take out a loan to consolidate your debt, there’s a chance your credit will be slightly affected.

It’s a risk to open another account since your debt is not increasing. Close your paid off accounts if you want to somewhat offset the penalty. But as long as you follow protocol you’ll once again be in good standing with your credit.

What are Your Financial Choices?

Everyone has different needs, so financial choices may differ as well. Debt consolidation may have the least impact on your credit report, but it’s still expensive to have additional loans.

Opt for debt settlement so you wouldn’t end up getting bankrupt. Find out the fees and rates each company offers before you make a decision. It’s also a good idea to consult with a credit counselor for additional advice and suggestions about your finances.

Do you want to learn about private wealth management or lifestyle design? Discover the facts here.

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Article Citation
MLA Style Citation:
Thornton, Clyde "Debt Settlement And Debt Consolidation – Which Is Better?." Debt Settlement And Debt Consolidation – Which Is Better?. 26 Aug. 2010. 29 Apr 2016 <>.

APA Style Citation:
Thornton, C (2010, August 26). Debt Settlement And Debt Consolidation – Which Is Better?. Retrieved April 29, 2016, from

Chicago Style Citation:
Thornton, Clyde "Debt Settlement And Debt Consolidation – Which Is Better?"

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