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Debt Consolidation or. the Debt Settlement Method: Which one is better?
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Debt Consolidation vs. The Debt Settlement Option: What one is better?
Debt consolidation and debt settlement each have their pros as well as pros and. The best option for you is based on the circumstances you face.
Written by Sean Pyles Senior Writer | Personal finances and credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the producer and host of the NerdWallet's "Smart Money" podcast. The show "Smart Money" Sean talks with Nerds on NerdWallet's NerdWallet Content team to answer the questions of listeners about their personal finances. With a particular focus on sensible and practical advice on money, Sean provides real-world guidance that will help people improve the financial situation of their lives. In addition to answering listeners' financial concerns on "Smart Money," Sean also interviews guests who are not part of NerdWallet and produces special segments that explore subjects such as the racial wealth gap, how to start investing, and the background of college loans.
Before Sean took over podcasting at NerdWallet the company, he also wrote about topics concerning consumer debt. His writing has been featured in USA Today, The New York Times and elsewhere. When he's not writing about personal finances, Sean can be found digging around his garden, going for walks, or walking his dog for long walks. He is based within Ocean Shores, Washington.
Updated August 5, 2021 12:55PM PDT
Edited by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, financial management and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in positions such as copy desk chief and team editor and designer. Previous experience included copy and news editing for several Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in mass communication and journalism at Iowa's University of Iowa.
A majority of the products we feature come from our partners, who pay us. This influences which products we review and where and how the product is displayed on the page. However, this does not influence our evaluations. Our opinions are entirely our own. Here's a list of and .
You're trying to pay off . Should you use debt consolidation or debt settlement?
They may sound similar, but they mean two very different things -and both can cause more trouble for you.
It's time to cut your debt
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Debt consolidation
In this scenario, a variety of consumer debts are combined into one single debt. You can make use of a balance transfer credit card, home equity loan and 401(k) loan.
Why you might choose it:
To get a lower interest rate than what you're currently paying, which will save you money and will help you to pay off debts faster.
To cut the number of payments you're juggling
When the debt you're trying to reduce is in a manageable size and the debt is of a manageable size,
• How to pay off debt:
Debt settlement
It is risky as you defer payments from a lender and, after your account is in serious delinquency you should try to negotiate a lesser amount to pay off the debt.
Withholding payments can ruin your credit score and can lead the possibility of being sued for payment. There's no guarantee that the creditor will be willing to settle.
You may try hiring or trying a company, but beware: This field is rife with unscrupulous players. The Federal Trade Commission recently ordered 11 of these companies to stop their advertising, claiming that they stole tens or million dollars of consumers , and provided them no benefits.
The reason you should consider this option:
Do this only if have an account that is long-delinquent, or in the process of being , and you think the creditor is willing to take a partial installment. You have little to lose since the damage has already done.
The author's bio: Sean Pyles is the executive producer and host of NerdWallet's Smart Money podcast. His work has been published in The New York Times, USA Today and elsewhere.
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