While
they both work to get you out of debt - they are in fact two distinctly
different processes. Debt consolidation works to lower you interest rates by
basically transferring your debts over to a new single loan with better
interest. A popular alternative to consolidation is known as debt settlement or
debt negotiation, which works by actually reducing what you owe to creditors.
With debt settlement, a third party negotiates with your creditors on your behalf to
reduce what you actually owe in balances. It works similarly to debt
consolidation, but the company that arranges the settlement does not 'buy' your
debt, they just negotiate better payment terms and interest rates - then
collect money on your behalf to divide up amongst your outstanding creditors.
Certain
companies and organizations will offer both services. Debt consolidation loans
usually call for collateral (a good option for homeowners), whereas debt
management services can often be acquired with little or no collateral. It
should be noted that you will get a better rate if you have collateral.
Some good
advice is to shop around and see what solution is best suited for you. Go with
whoever can get you the lowest monthly payments and best payment terms. It may
not always be the same company, depending on your situation and what options
are available to you. Most companies are happy to give you more information
and/or no-obligation quotes online so you can compare which company works best
for you.
