Debt Relief vs Debt Consolidation

Although the two options often get mistakenly confused with each other they are vastly different. With debt relief you will not be making monthly payments as you would normally and will effectively default on the unsecured debts you want to eliminate. With a debt consolidation loan you are going to borrow money in the hopes of combining all accounts into one and saving money off interest. Both options have their benefits and drawbacks.

Debt Relief

Comparatively speaking, debt relief has more negative consequences associated with it than just getting a consolidation loan. On the other hand, debt relief also provides a substantial amount more savings (both off the principal amount and with cashflow and interest savings) and allows consumers to pay down their debt much quicker. The debt relief option is not a loan so there is no interest at all. So, in addition to principal savings consumers also save money off interest foregone from their debt obligations. Debt relief is the better option if you strictly looking to save money and don’t mind taking a potential hit to your credit score. Since you’re avoiding interest payments altogether and paying back less than what you owe this option will provide the most savings.

Debt Consolidation

Debt consolidation is a loan option in which you are taking smaller debts (typically credit cards and/or personal loans) and rolling them all up into one combined larger “consolidation” loan. This consolidated loan is meant to save consumers money off the principal amount and provide them with one monthly payment. You typically need a good credit score to qualify for one of these loan options, especially if you are looking to consolidate all your debts. There are many factors to consider when thinking about a debt consolidation loan. You should take into consideration origination fees, your qualifying interest rate and all applicable finance charges. Debt consolidation is typically the best option for those who want to keep the status quo but just want to save some money on interest payments. Unfortunately, consolidation loans can sometimes be difficult to qualify for, especially if you are already carrying credit card debt.

Although the two options can sometimes get thrown into the same group they are quite different from each other. They both look to resolve the issue of credit card debt, except one is a loan option while the other option looks to settle balances for less than owed. All in all, each option will be better for different consumers. If you value savings over credit you might lean towards a debt relief option, while if you value you credit over savings you’ll likely lean towards a debt consolidation loan.