Debt Consolidation 

Debt consolidation companies typically have prearranged debt repayment arrangements with several credit card and collection organizations.  With Debt Consolidation, you sign up with a debt consolidation association and you get a smaller overall monthly payment.  The payment is established on a decreased interest rate they have pre-arranged with the creditor. 

The present payment is less than what the credit card companies extend you, saves you moneyy every month and is often the better way to consolidate debt. One advantage of a debt consolidation repayment service is that it can prevent you from becoming bothered by your creditors (if you make the your new, lower monthly installments on time). The downside of the debt consolidation repayment plan is that you have to forget all credit cards that you add in the program. You are also billed your first payment you make toward the program and an additional monthly administration fee. 

Service charges vary from flat fees of $20-$60 plus a $5 fee for every creditor. This means you will be paying almost $30 a month that does not go towards paying off your debts. Debt consolidation plans can help you if you have above average interest rates or hold higher credit card payments than you can take care of.  Debt consolidation allows you to make one payment to one company for all of your credit cards. 

Debt Negotiation

Debt negotiation is an alernative form of debt settlement.  This is most often given to families who can't handle a debt consolidation plan.  If you can't make the minimum payments required in a debt consolidation repayment plan or haven't made payments in the past three months, a debt negotiation plan is the next phase for resolving debt and credit issues. 

One benefit of a debt negotiation program is you can temporarily stop payments to your creditors.  The debt negotiation organization you work with usually takes monthly payments from you and keeps it in an account, or lets you hold the cash in your own account.  If you are making the required monthly payments to the debt negotiation establishment, they negotiate with your creditors for a reduced payoff of around 40-50% of your total amount of debt.  Once a negotiated settlement is agreed upon with your collectors the debt negotiation company makes an one time payment to them. 

A downside of the debt negotiation approach is that it reduces your credit score.  However, a good debt negotiation company will force the creditor to report to the credit reporting agencies to show your balances paid in full.  Thus your balances do not show up as a negative on your report once your account is settled. 

A few debt negotiation companies will include a credit repair program that will eliminate the negative items caused by the debt negotiation program. You pay for this service as part of their program. Now that you have an idea what debt consolidation versus debt negotiation is choose which one will work best for solving your debt and credit problems.