Debt settlement or Debt consolidation which is better for your overall credit?

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Im in a lot of debt and i have been looking for some help just to control everything thing and get one monthly payment.. I’m credit is already crappy but i would like to save as much as possible..and i’ve heard bad things about both the settlement and consolidtation.. So does anyone have info on it for me or has been through either of them??

Thanks!!

3 Comments
  1. Reply
    CatDad
    July 17, 2011 at 6:27 pm

    Debt settlement and debt consolidation basically mean the same thing. STAY AWAY from any “debt consolidation” company that promises to cut your debt in half through debt settlement….This is a risky tactic of deliberately ceasing all payments to creditors and forcing your accounts into default to attempt settlements. You pay a monthly fee to a debt consolidator….this entire fee goes towards building a settlement account and to the consolidator’s fees to “settle” your accounts in the future. Your credit card companies will deliberately not be paid so that all the accounts will default/charge-off so that they can attempt settlements at around 50%. If you are current on your accounts, this process will ruin your credit rating for sure. Debt settlement is like a roll off the dice with your finances…You can never predict how your creditors will respond to the deliberate defaulting of your accounts…they might settle at 50%…or they might serve you a summons, take you to court…and if they win, you could be looking at wage garnishment.

    None of these “debt consolidation” firms have the power to force your creditors to accept settlements. Your creditors have the right to refuse these terms and take you to court.

    http://online.wsj.com/article/SB122394458494631223.html

    If you have already defaulted or are drastically past due, then you can try to negotiate directly with your creditors. See video from Suze Orman on this:
    http://www.youtube.com/watch?v=jS43XFa3KGU

    Another option is entering a Debt Management Plan (DMP) with a non-profit credit counselor like CCCS (Consumer Credit Counseling Services). Contact your local Red Cross for a referral. They can negotiate lower payments and interest rates. They do not negotiate settlements.

    They will require you to stop using all credit and to cut up your cards. Your credit report will be updated to “enrolled in debt management.” This does not damage your credit, but it may make it impossible to obtain new credit while you are enrolled in their program….so don’t use this service if you anticipate applying for a new apartment, car loan or mortgage anytime soon, as you would probably be denied while you’re enrolled in the CCCS debt management program…. Otherwise, it can be a very good way to deal with your debt.

  2. Reply
    K.C.
    July 17, 2011 at 6:33 pm

    I agree with CatDad….join a DMP (Debt Management Program) I’ve personally finished on about a year ago and I’m glad I went that route….do some research so you can fully understand what a DMP is and how it works…..FYI — If you do decide to do a DMP go with a non-profit one where the service will be free….the one I went with and always recommend is CareOne Credit….also another FYI your credit will not be hindered by joining a DMP in the long run it helps!!!

    Feel free to email me if you have other questions about a DMP

  3. Reply
    Jeanne R
    July 17, 2011 at 7:13 pm

    Neither, they are just two names for the same thing. Please do not consolidate. It is not free, they will lower your payments by increasing the length of time until you are debt free, and you will take a hit on your credit score. Or they negotiate your debt down after telling you not to pay for awhile adding another hit to your credit score. There is a better way.

    A. Have a garage sale and sell anything that you no longer need or want.

    B.Get a temporary part time job, if you have one, get another.

    Here is a plan that can help you. If you work the plan, the plan will work for you:
    1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an “emergency fund” category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don’t even have to worry about it. You must cut your spending and live on less than you make.

    2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.

    3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:

    To start :
    Debt #1 (highest interest): minimum payment+ extra payment
    Debt #2 (middle interest): minimum payment
    Debt #3(lowest interest): minimum payment

    Debt #1: paid off
    Debt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra payment
    Debt #3: minimum payment

    Debt #1: paid off
    Debt #2: paid off
    Debt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.

    That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.

    4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.

    5a. When you have your emergency fund in place, add a category for “fun” to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.

    5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.

    5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.

    You can do it and it isn’t as hard as you think. Just follow the plan.

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