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Debt Consolidation vs. The Debt Settlement Option: What is Better?
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Debt Consolidation and. the Debt Settlement Method: Which one is better?
The debt consolidation and the debt settlement both have pros and cons. Which is best for you is based on your circumstances.
Written by Sean Pyles Senior Writer | Personal finance and debt Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet's "Smart Money" podcast. In "Smart Money," Sean talks with Nerds from the NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on thoughtful and practical advice on money, Sean provides real-world guidance that can help consumers better the financial situation of their lives. In addition to answering listeners' financial questions on "Smart Money," Sean also interviews guests who are not part of NerdWallet and also creates special segments that explore subjects such as the racial wealth gap and how to begin investing and the history for student loans.
Before Sean was the host of podcasts at NerdWallet, he covered topics related to consumer debt. His writing has been featured throughout the media including USA Today, The New York Times and elsewhere. When Sean isn't writing about personal finance, Sean can be found working in his garden, going for runs and taking his dog on long walks. He lives within Ocean Shores, Washington.
Updated Aug 5, 2021, 12:55 PM 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. In the past, she worked for 18 years with The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Her previous experience includes news and copy editing for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in mass communication and journalism in the University of Iowa.
The majority or all of the products featured here are from our partners, who pay us. This influences which products we write about as well as the place and way the product is displayed on the page. But this doesn't affect our assessments. Our views are our own. Here's a list and .
You're trying to pay off . Should you use debt consolidation as well as debt settlement?
They sound similar, but they mean two completely different thingsand each can lead to more issues for you.
It's debt-crushing time
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Debt consolidation
In this case, several debts are rolled into a single debt. You can make use of a balance transfer credit card, home equity loan as well as a 401(k) loan.
Why you might choose this option:
to get lower interest rates that you're currently paying which will save you money and helps you get rid of your debt faster
To reduce the amount of payments you're making
If the debt you're trying reduce is a manageable amount and type
• How to pay off your debt:
Debt settlement
It is risky as you defer payments from a creditor and, after your account is in serious delinquency, try to negotiate a lower amount of payment to settle the delinquent debt.
Withholding payments can ruin your credit scores and opens you to being sued over payment. There's no guarantee that the lender will agree to settle.
You can try or hire a company, but beware this field is filled with scammers. A Federal Trade Commission recently ordered 11 such companies to halt their marketing, saying they stole tens or thousands of dollars in cash from consumers , and provided them little benefit.
Why you might choose it:
Do this only if have an account that is long-delinquent, or in the process of being an insolvency situation, and you believe that the creditor may take a partial installment. You have little to lose because the damage to is already taken care of.
About the author: Sean Pyles is the director of production and host for NerdWallet's Smart Money podcast. His work has been published on The New York Times, USA Today and elsewhere.
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