Debt Settlement: Is this better than Debt Consolidation?

Debt settlement is a situation in which both parties; creditor and debtor, agree on a reduced amount to be repaid over a fixed period of time. Debt consolidation is a process where a person either takes a loan to repay the creditors at once or engages a debt consolidation services firm who manage a monthly payment for the creditors charging a fee or commission from the debtor.

Debt Consolidation: 

This is a solution for people to start taking action towards resolving the debt. The process requires a lot of research and study on each case and the decision which option to adopt is a critical one. The choice between whether to take a loan and repay the loan at once or to pay monthly to debt consolidation service to pay the creditors by charging a commission is difficult. The first option entails that previous debt is paid at once but there is another debt of a loan which includes interests and is equivalent to any other debt. While the second option is processed within the available resources, there is quite a bit of money that is paid extra as the commission of the debt consolidation services.

Debt Settlement:

This solution is more focused on resolving the debt problems in a shorter time period. The process is shortened because both parties involved wish to waiver a part of the debt so that repayment can be done sooner. It has been argued mostly that it is loss situation for the creditors but has been researched to realize that in practical terms it is not a loss situation. Since the creditors get the money in less amount of time, the lost amount can be recovered by reinvestment. As for the debtor, there are usually no extra debts involved and repayment is made within the resources available to them. There are a lot of debt settlement firms who help in this process and charge a onetime fee from both the creditor as well as debtor.

So, it is difficult to decide which option is better in generalized version; debt consolidation or debt settlement. The choice depends upon the circumstances of the case and the debtor and acceptance of creditor. But it can easily said that both options help resolve the issue of debt and should be considered before a decision is made about one’s financial crisis.