
- By Mahum Zaidi
- January 27, 2025
There’s more than one way to tame your debt. Whether you’ve got one big debt or a pile of different debts, there are several strategies available to help make your debt more manageable, reduce the impact of carrying the debt, and jump forward on your debt repayment plans. Debt services can offer you a variety of strategies that can assist in your goals to achieve financial stability today and debt freedom in the near future. The two top debt management strategies are debt consolidation and debt settlement.
Choosing the right path starts with understanding the difference between them and how each one can help resolve different types of debt portfolios. We’ll help you determine which one is right for you.
What Is Debt Consolidation?
Debt consolidation is a way to combine all your debts into one low-interest and easy-to-pay loan. The loan is used to pay the original debts, allowing you to stop being bothered by high interest rates, collection calls, and extraneous debts on your credit report. Instead, you will only have one manageable loan that is structured in a way that makes it easy for you to pay off the amount comfortably over time.
Debt consolidation allows you to transform many smaller debts into one large yet more approachable debt.
In addition to lowering your interest rate and making your debt easier to pay, debt consolidation is also good for your credit score. You can mark all consolidated debts as paid, and paying off a structured loan over time provides a steady credit score boost – just like a mortgage or car loan.
When to Choose Debt Consolidation
Debt consolidation is ideal if you have several different creditors and high-interest loans. Combining several debts into one structured loan can make your debts easier to handle with one manageable repayment schedule. If your debts have high interest rates, then debt consolidation can help you transition to a lower interest rate that will make your debt easier to pay off over time.
Debt consolidation can also help you quickly improve your credit report by paying off many debts at once in trade for a structured loan, which will boost your credit score as you pay it off steadily.
Lastly, debt consolidation is ideal if you need to secure a low but steady debt repayment plan that fits comfortably with your current income and cost of living. The debt consolidation loans are designed to make debt repayment easier and provide financial stability.
What Is Debt Settlement?
Debt settlement is when you or a credit counselor renegotiates your debt to a lower amount.
How does it work? Debts that have gone into collections often go unpaid. Debt collectors (who buy debt in hopes of getting the payment) are often willing to take less than the full amount for a guarantee of some payment. A skilled negotiator can haggle down the total amount you will need to pay, reducing your debt, in return for a promise to pay the remaining amount.
Debt settlement reduces the total amount of debt you have to pay by negotiating with each creditor. You can arrange to pay the remaining amount in a lump sum or in steady installments. Your negotiator can often arrange a financially comfortable repayment schedule to help you pay off your lowered debt.
Settlement reduces the total money you lose to debt repayment and can shorten the time you have remaining debt because you can pay off the smaller amount in a shorter time.
When to Choose Debt Settlement
Debt settlements are ideal if you owe large sums of money that have gone into collections. Collectors are most receptive to debt settlements, and this presents an opportunity to owe less money overall.
Debt settlement is a good choice when you want to lower your debt and stop debt collectors from pursuing you for payments. It can also allow you to reduce your debt and pay it off all at once—if you have cash on hand—or to reduce your debt amount and transition to a more reasonable payment installment plan.
Key Differences to Consider
What are the key differences between debt consolidation and debt settlement?
Creditors
- Debt consolidation pays off your creditors in trade for a new loan
- Debt settlement renegotiates with your current creditors
Debt totals
- Debt consolidation keeps the total the same
- Debt settlement lowers your total debt
Interest rate
- Debt consolidation can transfer high-interest debt into a low-interest loan
- Debt settlement may keep the same interest rate for a smaller total debt
Repayment
- Debt consolidation creates a steady loan repayment schedule
- Debt settlement can be repaid in a lump sum or installment plan
Credit score
- Debt consolidation can improve your credit score by paying original debts and then managing a structured loan.
- Debt settlement does not immediately improve your credit score but makes your debts easier to pay.
Build Your Debt Resolution Strategy With DebtBlue
We are here to help you manage your debt and build a positive financial future. Contact DebtBlue for a consultation to discuss how debt settlement can help you save money and become debt-free.