Debt Consolidation Vs. Debt Settlement

Which program is best for me?

It really depends on your individual situation, but let's take a look at the pros and cons of both programs.

Let's use an example of a client that has $20,000 in total unsecured debt and is currently paying $450 per month in total monthly minimum payments with an average interest rate (APR%) of 15%.

Under their current plan at 15% APR they are paying $250 a month just in finance charges, so only $200 is coming off their $20k balance each month. Which means it will take them 34 years to pay off if they're only making the minimum monthly payments and nothing more. By the time it's paid off they will pay $44,479, that's more than double what they owe.

Now let's compare debt consolidation or non profit credit counseling program, with the same amount of debt. Depending on which creditors you have the monthly payment will be some where around $484, that's $34 more dollars per month than the current payment. At $484 per month this client would be paid off in about 58 months, 5 years depending on which creditors we're talking about the interest rate would be somewhere between 6%APR and 9%APR. In total you'd pay somewhere around $24,000. That's a savings of $20,000 and a lot of time.

Again $20,000 but now in the debt settlement program. There's no interest so it's a 0%APR. If you choose a 36 month program the payment would be $345 and in total you'd pay $12,450 which includes settle all the debt and any fees that we charge. That's a saving of $12,000 from the debt consolidation program and an even bigger savings than paying on your own at 15%APR. As well as a savings of two years worth of time compared to credit counseling.

The downside to the debt settlement program is that it will negatively affect your credit, while credit counseling will keep your credit in decent standings.

You need to ask yourself, what's more important. Having a good credit score that you really only need to put yourself further into debt. Or getting out of debt in a shorter time period and for a lot less money out of your pocket.

A partner site of ours is Consolidated Credit.