: Debt-Consolidation

Debt Consolidation Versus Debt Negotiation

Do you know the difference between debt consolidation versus debt negotiation? These are some of the options available to you when your monthly bills become too much for you to handle.

Here are the differences between debt consolidation versus debt negotiation for solving debt and credit problems.

Debt Consolidation

A debt consolidation service offers you prearranged debt repayment plans with the credit card and collection companies that you owe money to.

When you sign up with a debt consolidation company they offer you a new, lower monthly payment based on lower interest rates they have arranged with that creditor.

This payment is usually lower than what the credit card companies offer you and will save you money every month, and in some cases, the best way to consolidate debt.

A benefit of the debt consolidation repayment plan is it will stop you from getting harassed by your creditors as long as you can make the new monthly payment.

But a downfall of the debt consolidation repayment plan is that you must cancel all of your credit cards that you include in the plan. You are also charged your first payment you'd make toward the program and a monthly administration fee. The administration fee ranges from flat fees of $10-$50, while others charge a per creditor fee of $5. That means you'll pay about $30 a month that doesn't go toward your debt.

A Debt Consolidation Program works best if you have very high interest rates or have higher credit card bills than you can manage. But you have the simplicity of one payment to one company for all of your debt.

Debt Negotiation

Debt negotiation, is usually offered to people who can't handle a debt consolidation program. Debt negotiation is sometimes referred to as debt settlement.

You may want to choose debt negotiation if you can't make the minimum payment of a debt consolidation repayment plan or haven't made payments in the past 3 months. This is usually the next step for solving debt and credit problems.

The benefit of a debt negotiation program is you stop making payments to your creditors. The debt negotiation company either takes monthly payments from you which it keeps in an account, or has you keep the money in your own account.

During the time you are making monthly payments, the debt negotiation company negotiates with your creditors for a lower payoff of around 40-50% of your total amount owed.

Once a negotiated settlement is agreed upon with your creditors, a one time payment is made to them from the debt negotiation company.

The down side of the debt negotiation program is it hurts your credit score as long as you are in the program. But most debt negotiation companies require the creditor mark the credit report as paid in full so it doesn't show up as a negative mark on your report once your account is settled.

Some debt negotiation companies include a credit repair solution that will remove the negative items that were caused by the debt negotiation program. This is a credit repair service that you pay for as part of their program.

Think about what debt consolidation versus debt negotiation is and choose which one will work best for solving debt and credit problems the best way.

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Author: Gary Gresham