Description: Debt consolidation and debt settlement are two common ways to reduce your debt burden.

Ways to cut the debt

Consumers are being plagued with all sorts of debt problems and they are receiving different offers from different companies that promise to make them debt free. During troubled economic times, these offers might appear quite enticing. Offers of debt consolidation and debt settlement are made to the consumers to alleviate their debt burden. However, experts recommend that consumers should make sure they know the differences between debt settlement and consolidation prior to signing up for the services of a company. If they don’t make their decision carefully, they wouldn’t be able to handle their bills properly. Moreover, they might land themselves up in a worse financial situation.

In the United States, the unemployment rate climbed from 7.2% to 7.6% in January 2009 as per statistics provided by the US Department of Labor. More and more families are facing difficulties to keep up with their bills and they’re desperately looking for a way out. As the unemployment rate is rising at an alarming rate, the number of scam companies taking advantage of the poor financial condition of consumers is also going up. Therefore, it is essential that consumers understand different options to manage debt and check the authenticity of a company before working with them. Given below are two useful options to cut down your debt burden:

1) Debt settlement/negotiation

Debt settlement companies negotiate with your creditors to reduce the overall outstanding balance by a significant extent (up to 70%). When your outstanding balance is lowered, you can become debt free conveniently. Your late fees and over limit fees are eliminated and you can pay off your balances with one lump sum payment. Settlement can help you achieve debt independence within 12-36 months but it’s not favorable for your credit score.          

2) Debt consolidation

Debt consolidation allows you to combine all your bills into one so that you can pay them off easily. You just need to make one small payment to the consolidator each month instead of multiple payments to different creditors. Reduced interest rate is the principal advantage of consolidation. Though consolidation can make your bill payments more affordable, it takes more time than settlement and might cost you more on interest in the long run. Consolidation doesn’t spoil your credit score like settlement does.

From the two options given above, you must choose the one that’s fit for your financial condition.