Debt consolidation good step, but different than debt settlement - Part 1

When looking a ways to achieve financial freedom, people typically look at two solutions: debt consolidation and debt settlement. The two paths are different ways to begin your journey back to credit-worthiness. Here are some frequently asked questions with answers that will allow you to make an informed decision about debt consolidation versus debt settlement.

Debt consolidation is a different path than debt settlement to achieving financial freedom

1) Is debt consolidation the same as debt settlement?

No. In the first situation, debt consolidation produces a single loan to pay off all your debts. You pay interest on the resulting loan (and sometimes remaining creditors). The problem is your outstanding debt principal stays the same, and it can still take years to pay off. A good debt settlement program negotiates for you using the appropriate debt collection laws to reduce your debt to a fraction of its original size.

2) How long does debt settlement take?

Debt settlement clients can eliminate their debts with nine to 24 months (or sooner), but obviously varies from individual to individual. It depends most on how quickly you can get the money to resolve your reduced debt. This process is part of the initial free consultation.

3) Does debt settlement affect my credit rating?

Debt settlement prevents bankruptcy, but may still hurt your credit rating (especially if your bills are current with no history of late payments). The good news, however, is your debt-to-income ratio will improve once your debts are settled, perhaps improving that part of the credit score. And because your debts are paid, future creditors will see that you made every effort to settle the balance rather than simply walk away through bankruptcy.

4) Is my financial information kept private?

A good debt settlement firm and its affiliate companies are bound it the rules of professional conduct to maintain full client confidentiality. Obviously, those creditors contracted for settlement will be notified that you have hired a debt settlement company to represent you.

5) How badly in arrears, do my debts need to be for me to consider debt settlement instead of debt consolidation?

If, after reviewing your financial situation, you determine that there is simply no reasonable time period to pay off your outstanding bills then debt settlement is probably a better route than debt consolidation. Otherwise you are simply transferring your debt from multiple creditors to one, but not really reducing the debt quickly enough.