Does a Debt Consolidation Company Request a Settlement?

Debt consolidation is different from debt settlement and it is important to make the distinction between these two services clear. There are different debt relief programs that will work most effectively toward the financial freedom of various groups of individuals. Understanding the differences between consolidation and settlement services will help you to select carefully the debt management plan that is right for you.

Consolidation

Debt consolidation is the practice of acquiring a single loan that effectively pays off all of your creditors in one single blast. The consolidation loan is then paid off in monthly installments that are submitted to a single company, at an interest rate and set fees that are agreed upon by both parties concerned.

Consolidation loans are therefore used to pay off your creditors in full. There are no negotiations involved in this process that are aimed at reducing the amount of money owed to creditors in order to settle your accounts.

Settlement

When individuals miss several payments or find themselves in a situation where they are perpetually being charged late fees on their account, the amount of money owed can quickly swell to enormous amounts. In these situations, it can seem nigh unto impossible to ever repay both the principle debt and all of the late fees associated with the account.In this case, settlement negotiations can be entered into in order to cut away a large portion of the late fees and interest charges associated with the account and to settle the account for an agreed upon, reduced amount of money.

How to Choose

Many individuals may be tempted to choose a settlement option when they hear that the amount of money they owe can be reduced. However, settlement options can have adverse affects on your credit rating, whereas consolidation loans help to restore your credit rating to a stable position.

If possible, individuals should attempt to resolve their debt problems with a consolidation loan in order to protect their credit rating and close their accounts with creditors in good standing. Requesting a settlement should be the last solution you look to with your debt relief organization in your attempts to restore your credit to good health.