Debt settlement and consolidation are the two different methods of helping the consumers to get rid of the unsecured loans that they have. Which method to be used depends on the financial condition of the consumers and also their moral and ethics. It is really difficult to compare the two and call one to be better than the other. These two methods are unique in their own way. A person who wants to pay the debts in full but has a trouble in paying the dues because of high interest rates and other associated costs of the loans can actually go for debt consolidation method. As against this, if a person is willing to eliminate at least 50% of the outstanding, he or she can opt for debt settlement as the option.
Both this methods will be needing professional help and both the methods will be using the threat of bankruptcy to achieve the target. In consolidation, the professional consolidator will actually threaten the creditor of bankruptcy in case the lender never agrees to reduce the interest rate and remove some of the costs like late fees, over limit charges and others. The creditor will agree because reducing interest and eliminating some of the costs is better than losing the whole of the money and will re-amortize the loan repayment using the new interest rate. This will reduce the monthly burden of the consumer and the consumer will pay every month until the dues are cleared completely.
On the other hand, in the method of debt settlement, the professional negotiator will actually threaten the creditor with bankruptcy and ask for elimination of at least 50% of the total outstanding. The creditor will also be offered a bulk repayment of the remaining amount. The creditor will never want the consumer to file for bankruptcy and will therefore, agree to the offer and wipe out at least 50% of the dues. The consumer needs to repay remaining amount in bulk.
The method of consolidation will take at least 5 years to complete whereas the method of settlement will take a maximum of 3 years to complete. Looking from the aspect of time consumed, the method of settlement is better. However, as said in the opening lines of the article that the method chosen will to some extent depend on the moral and ethics of the consumers. Hence, it is difficult to say which is a better one. It is also worth mentioning that the credit score of the consumers remain intact in both the methods. Thus both are equally good as per the choice of the consumers.