Which debt relief option should you choose - Debt consolidation or settlement?

If you have accumulated a number of unpaid credit card bills, it is most likely that you must be in search of some debt relief options that can help you get back on the right financial track. Accumulating too much high interest credit card debt can have a detrimental impact on your financial life and thereby affect your credit score in the long run. Unless you take some solid steps about your debts, you can never see your financial condition improve. Among the various debt relief options that are available in the US market, you must choose the best one according to your present financial condition. If you're wondering whether to consolidate your debts or settle them, read on the concerns of this article.


How is debt consolidation different from debt settlement?

Debt consolidation and debt settlement are two different debt relief options that have nothing in common other than helping you in climbing out of the debt cycle. When you choose to enroll yourself in a debt consolidation program, you'll have to repay the entire debt amount that you owe. The debt consultant will try his best to negotiate with your creditors and lower the rates so that you can easily repay the loans in single and affordable monthly payments. Boosting your credit score is also possible by opting for debt consolidation as you end up repaying the whole amount that you owe your creditors.

On the other hand, debt settlement is entirely different from debt consolidation as you're not repaying the entire amount to your creditors. This particular debt relief option is chosen by those who have no other option but to file bankruptcy. Both bankruptcy and debt settlement hurts your credit score but the impact of debt settlement is a bit less if compared to bankruptcy. In debt settlement, the consultant will negotiate with your creditors and try to waive off a portion of your balance so that you can pay off your debts with ease.
 
Does debt settlement have any disadvantage?

Yes, debt settlement trashes your credit score to a large extent and makes you highly unworthy of getting further lines of credit in the near future. As you do not repay your debts in full, this will be reported to the credit bureaus as 'paid as settled' and this will tank your score. Moreover, since a part of your credit card debt will be forgiven, you have to pay tax on that forgiven amount as it will be considered as your added income.

Thus, if you're knee-deep in credit card debt, you must rather choose to go for debt consolidation than debt settlement as that will not harm you financially. Though there are many debt relief options that you may choose, it is always better to choose the most appropriate one that suits your personal financial needs.