Using a Debt Consolidation or Settlement Service

What is Debt Consolidation?

Debt consolidation is a process where you arrange with a third party company to manage your debts for you. This is usually done by this third party contacting your various unsecured lenders and credit card companies to try to get them to agree to accept a certain amount of money from them regularly, so that only one payment has to be made by you in order to cover all of the relevant expenses.

Debt Consolidation isn't usually free, however. Most services charge either a percentage of the debt they negotiate for you, or perhaps charge you based on the number of debts that they are managing for you. In either case, you should not pay directly and up-front any fees associated with this service, rather the payment should be a part of your regular overall payment that you make to them.

How is Consolidation Different from a Settlement?

Debt Consolidation is a bringing together of your various creditors under one "roof" for a single payment and easy management for your sake. This may also entail the consolidation firm negotiating with your creditors to get you a lower interest rate, payment amount, or total amount due, which is known as Debt Settlement.

Debt settlement is a negotiation with a credit card company or collection agency that reduces the total amount you will have to pay to settle your debt. For example: if you have a $5,000 credit card balance on one card, you may be able to negotiate with them that you will pay them a lump sum of $2,000 and the debt will be satisfied. This is a common method used by debt consolidation companies before the actual consolidation of your debts takes place.

Will Consolidation Affect My Credit Rating?

Debt Consolidation may or may not have an affect on your credit rating - it depends upon who is handling your consolidation process and what techniques they use. For example: if you sign on with a debt consolidation company and they negotiate with one of your credit card companies to reduce or eliminate your debt owed to them, that will probably be reported on your credit report.

Ultimately, if you choose to use a debt consolidation service or a settlement service, be sure you are getting the best rates and finding a reputable company that will help you get ahead. Negotiate credit debt today!