subject: Debt Settlement versus Debt Consolidation [print this page] Debt settlement and debt consolidation are related terms but have different functions. Debt settlement is a debt elimination program for unsecured debts and debt consolidation is a type of loan.
The keywords to remember are program and loan. Debt settlement is a negotiation program that aims to cut the balance to more or less half, in less than a year. A debt consolidation loan is usually one loan to pay off all the others. Consumers usually avail of it for the lower interest rate (which may not be possible if the credit is bad or no collateral) or fixed interest rate.
What is debt settlement?
Debt settlement is a form of debt relief that deals with balances that are over $10,000 and accounts that are past due, or almost. The reason behind those qualifications is that, creditors are funny creatures when it comes to money, if the balance is relatively low, they'd rather they be paid in fullsomehow. Otherwise known as taking legal action to obtain a judgment, and a judgment is any of the following: wage garnishment, bank levy, or property lien. Regarding the account being past duecreditors would not settle for less than the full amount if it's not yet after 5 to 6 months, or the charge off period. Banks are mandated by the IRS to write off debts that have not been paid, as "bad debt," after 6 months.
Debt settlement companies anticipate these quirks in creditors that's a why they have those qualifications. But what happens to debts that have charged off? Creditors, to get back some amount somehow, pass the account on to a third party collection agency, which they most likely own too, and have them hound the consumer until they cough out any amountclose to full amount, if they can get away with it.
If the consumers account is with a third party collection agency, the chances of settling the debt to more or less half is very possible, unlike with the original creditor. With the original creditor, although not impossible, it would be like pulling taffy to settle, let alone settle lower than 75% of the original balance.
