There has been a lot of discussion about the difference between debt settlement and debt consolidation and the question is being raised even if they are the same thing and which one is better. How ever, both have their own parameters and situations in which there are favorable. In this article we will try to explain the difference between the debt settlement and debt consolidation.

Debt settlement is a process of negotiations between you and your creditor. In this process you make them agree to waive off certain amount of your debt and settle at some amount which is actually a fraction of your total debt to be paid in the place of original debt. This situation arises when the debtor is unable to pay his loan and is close to file for bankruptcy. Hence, debt settlement is a better alternate to bankruptcy. You can achieve debt settlement yourself and even can take help from any debt settlement companies. These companies will talk to the creditors on your behalf and will try to settle on a less amount. A trust account is made and when the reasonable amount is accumulated in it than the debt Settlement Company contacts all your creditors to do the debt settlement.

Now, the difference between debt settlement and debt consolidation is that in debt consolidation, all your debts from different creditors are gathers and this total amount is paid back through less monthly installment. There are consolidation companies who help you manage debt consolidation process. These companies do not lend you any loan but help you organize you monthly installments and money plans with your creditors. Unlike debt settlement where you pay back only a fraction of your total debt, in debt consolidation you have to pay the entire loan back but in reduced monthly payments. This process can take too long, because whole of the debt is to be managed.

Both debt settlement and debt consolidation have their own ways of helping your debt problem. These processes will get you a debt free life and will reduce stress from your shoulders about monthly budgets, not only this but paying off you debt also increases your credit rank with bureaus.

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