If you are unable to manage your credit card bills and you want to stop them from accumulating into a huge amount and making it nearly impossible to repay your creditors, then consider opting for the strategies like debt settlement negotiation or credit consolidation.
Credit consolidation also known as credit card debt consolidation.
It allows you to make just one monthly loan repayment rather than making payments to several different companies.
Since these debt consolidation firms have pre-agreed contracts with the creditors, they are able to offer consumers the option to repay their debts at a lower interest rate, resulting in a lower monthly payment.
Thus by consolidating all the loans into one loan, the consumer has to pay a lower interest rate and making just one monthly payment to the firm, which will help it to consolidate the loan with the creditors.
However, through debt consolidation there is no actual reduction given in the principal loan amount which maybe of more concern to a consumer rather than just receiving a reduction in the interest charges.
However, through debt settlement you can actually get the loan amount reduced by a reasonable percentage.
Settlement firms negotiate with lenders to settle a reduced amount which is usually 50 to 70 % lower than the original loan amount of the debtor.
The debtor has the advantage of paying this lower amount either as a lump sum or in easy installments.
Once the consumer pays the reduced amount to the creditor, his account is considered as paid in full and he has no more outstanding liabilities towards the creditor.
Debt consolidation is a good option if you are having a rough time making the minimum monthly payments on your credit cards or if the interest rate charged is too high.
However usually, the debt consolidation firm charge high fee and may damage your credit score by lowering it every time when they miss a payment on your behalf to negotiate with the creditors.
Even though debt settlement may also lower your credit score but once the reduced amount is paid back, your account is reported as fully paid to the credit bureau.
Thus, the consumers should consider the advantages and disadvantages of both the debt relief programs and choose the one which best suit his requirements.