It has always been a matter of competition for both the debt consolidators and debt settlement companies to prove themselves over each other. But somehow debt settlement has managed to stay ahead in this race of oligopolies.
Debt Consolidation Programs
Debt consolidation programs give you a loan to help you manage your way out of debt by allowing you to pay off your earlier creditors. You are charged interest on it and at times even to your earlier creditors. Your principle amount remains the same, but you are still kept far away from clearing your debt.
In short, you don't get to experience a debt-free life for a significant amount of time; and by the time you do, you no longer have a life. This is why most people choose debt settlement over debt consolidation.
Debt Settlement
Debt settlement, on the other hand, is your rescue ship if you are drifting toward bankruptcy. If you are already in bad standing with your creditors and your credit rating is low due to a lack of payment history, then joining a consumer debt relief group can be the best way to modify your debt to income ratio and stabilize your account ratings.
Looking at this new status of yours, where you have cleared your past debts with the help of debt settlement program, your future creditors will hold you in consideration. And this definitely saves you from facing bankruptcy, which really should be your last option if you are in debt, as it is so damaging to your credit score.
The bankruptcy tag accompanies you for a very long time--almost seven to ten years after your filing for it. This takes away your financial freedom and books you as unreliable in the eyes of creditors. And this is precisely why debt settlement will provide you with a better solution than debt consolidation.
In many instances, debtors do not ask creditors for help and end up in the following trap: the creditors first raise the equated monthly emoluments--most of which comes from increased interest rates. When the debtor can't pay off the increased interest rate, he is forced to pay a penalty.
The actual dollar amount of the penalty will be negligible, but with his already-spiraling debt, the burden of those extra few dollars needlessly added will significantly add to his mental burden.
If this is your position, you need to take control and begin to eliminate your interest and penalty immediately. Once you do this, your creditor will reciprocate by giving you the benefit of the doubt, since he is no longer at risk of losing his principal.
Your next step is to consolidate all your credit card accounts by converting them into a single payment instrument--a single bill.
After you calculate the average interest applied to more than one credit card account debt, you can apply the formula for the consolidated credit card account to repay the optimum (lowest interest rate) amount only, thus reducing the average interest rate.
To make things even better, you will be able to fix your credit history by paying off all of your creditors immediately. Once the amount you receive is distributed among your creditors, you will slowly begin to recover as each creditor cancels your debt.
The participating creditors will both help you recover your credit and make your repayment easier and further their interests by recovering a principle amount that was almost sure to end up as a write-off.
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