Debt Settlement vs. Debt Consolidation: A Full Guide
Understanding the difference between debt settlement and debt consolidation is the first step toward making the right financial decision for your situation.
Take a Free Debt AssessmentDebt consolidation consolidates all of your debt from multiple sources — whether that be credit card debt, medical debt, or even student debt — and aggregates it into one singular monthly payment. This tends to maintain and preserve your pre-existing credit scores.
Debt consolidation tends to be for individuals that can make their monthly payments and have a good to great credit score, but are looking for ways to simplify their array of payments.
Debt settlement is the process of negotiating down an individual's total debt into a lower payment. The short term effect is that this leads to payment defaults and a lower credit score.
This option is best for individuals that cannot pay their monthly payments, have limited cash flow, and are looking for a financial reset. Debt settlement is ideal for those who do not need to make any large, short-term purchases contingent upon a good credit score, such as applying for a rental, purchasing a home, or buying a vehicle.
Associated Fees and Interest
Generally speaking, debt settlement plans take a larger percentage of interest — usually around 15–25% of the overall debt. Debt consolidation plans, meanwhile, usually take 5–10%.
Risk and Impact
Whereas debt consolidation will not have a substantial short or long term impact on credit score, debt settlement tends to have an impact on credit scores for upwards of 7 years.
Which Do I Choose?
If you have good credit, steady cash flow, and are looking to combine or simplify your payments, consider debt consolidation. If you have bad or poor credit, low cash flow, have no major upcoming purchases, and are behind on your monthly payments, consider debt settlement.
How PDS Can Help
No matter what stage you are in your debt journey, PDS can set you up for success by creating a personalized debt resolution plan that works for your specific situation. Contact us today to understand how our debt settlement and debt consolidation services can help you.
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Every person's financial situation is different. Our team at PDS can provide insight and help you make an informed decision.
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