Debt settlement and debt consolidation are two very different solutions to dealing with debts you may have incurred. Debt settlement wipes out your debts, whereas debt consolidation combines all the different debts you may have into one new debt, often at a lower interest rate than your existing debt. Therefore, the most important difference between the two is that debt consolidation keeps your debt in place, it simply changes the lender to whom you send your payments, and debt settlement results in your debt being wiped out completely.

Which Saves You More in the Long Term?

For anyone in debt, you likely are used to receiving all sorts of mail from not only the creditors you owe money to, but also from companies that provide you with all sorts of debt management and debt consolidation offers that promise to save you money while simultaneously either wiping out your existing debts completely or else lowering the interest rate you are paying on your existing debts. In addition to being in over your head with debts, you may not have the slightest clue what the difference between debt consolidation and debt settlement is and which one would be better for you in your personal financial situation. Therefore, choosing one or the other is simply a decision you are not capable of making without knowing the differences between the two.

Debt settlement wipes out your debts completely but can have a negative effect on your credit score, which can make it difficult to obtain credit for several years after you settle your debts. Debt consolidation, on the other hand, combines all your existing debts into a single new loan that will typically be at a lower interest rate than you are paying on most, if not all, of your existing debts. Debt consolidation may be right for some people, while debt settlement may be the right solution for others; it is entirely dependent upon your personal financial circumstances. However, regardless of which option you choose, you also need to ensure that you are doing business with a properly licensed business with a track record of success. Unfortunately, there are simply many shady operators in the debt management business, so the chances of being ensnared by a shady operator who will simply charge you exorbitant fees and not actually do anything to assist you in managing your debts is unfortunately fairly high. 

Which is the Better Solution if You Are in Debt?

This totally depends on your personal financial situation. The cheapest method to pay off all the debt you’ve accumulated is often debt settlement because this wipes out all your debt at once, but this can result in a black mark on your credit score that will negatively affect you for years to come. Your credit score likely will drop, which will result in increased borrowing costs if you are planning to apply for a mortgage or vehicle loan at any point in the near future or could even result in you being unable to obtain any financing whatsoever. Debt consolidation, on the other hand, keeps the amount of your existing debt in place, but combines all of your existing debts into one loan offered by a new lender who typically will charge you a lower interest rate than you were paying on your existing debts. However, debt consolidation often will not result in a drop in your credit score given that you are seeking to repay your existing debts for less than they are.  Instead, you are simply trying to lower the interest rate(s) that you are paying. 

Regardless of Which Option You Choose, Consider Who You Are Planning to Work With

Regardless of whether you intend to pursue debt consolidation or debt settlement, you need to ensure that the company you are planning to do business with is reputable and will not stick you with egregious fees and then not actually deliver on a promise to assist you with debt management. Despite the fact that the debt settlement and consolidation are highly regulated industries at both the state and federal level, there are still many shady operators out there. It is important to ensure the company you are doing business with or planning to do business with is legit, properly licensed and has good reviews, regardless of whether you are interested in debt settlement or debt consolidation. Contact Us at Signature Servicing to go over your options, either email us or call us at 844-440-7654.