When you are looking for a solution to your debt problems and start to look around for options, you will certainly come across the two terms – debt settlement and debt consolidation. They have two entirely different meanings and you need to know what that difference is before you agree to that form of solution with a debt services company of some kind.
Debt settlement means that you (or a third party) negotiate with the company to provide the debtor a reduced bill and a reduced monthly payment. The company may actually agree to cut the owed portion by as much as 40 to 60%, making it much easier for the debtor to handle lower payments.
Debt consolidation simply refers to consolidating current debt, usually credit card debt, by taking out a new loan to cover the balances. This permits a lower monthly payment and more time over which to pay off the debt.
The Better Business Bureau warns against many companies who claim to offer debt settlement or debt elimination options. Many of them are not real companies and will only take your money, leaving you with the same amount of debt, and damaged credit.