If you have too much credit card debt, now might be the time to stop this destructive cycle and get the help you need from a debt settlement or debt consolidation program. Debt settlement, also known as debt negotiation, allows you to settle your credit card balances to \”reduced and agreed-to\” amounts. Debt consolidation takes your high interest credit cards and consolidates them into one, lower-interest fixed monthly payment. Your level of debt determines whether debt settlement or debt consolidation is the better of the two options. This article discusses when debt consolidation might be a better choice than debt settlement.

Suppose that you have $9,000 of credit card debt with three credit card companies at a blended interest rate of 21%. In order to become debt free, you have three options: making the minimum monthly payments, getting into a debt consolidation program, or using debt settlement.

First, let\’s look at making the minimum monthly payments. If you want to become debt free by making the minimum monthly payments, think again! There are no advantages to this form of debt reduction. By making minimum payments only, it will take you 24 years and 2 months to pay off your credit cards. Based on the current balance of $9,000.00, you will pay a total of $13,480.63 in interest and a grand total of $22,480.63.

Next, let\’s look at debt settlement. With $9,000 of credit card debt, you would not qualify for most debt settlement programs. Why? The majority of debt negotiation companies require a minimum of $10,000 of credit card and/or unsecured debt to qualify for their services. Some companies even stipulate that you have as much as $15,000, $20,000, $25,000, or $30,000 of debt to qualify for their programs.

Here is another example of where debt consolidation might be a better choice than debt negotiation. Suppose that a debt settlement company was able to enroll you into their program with $9,000 of credit card debt. With debt settlement, your negotiation team opens a trust account for you. You must deposit a portion of your outstanding debt (usually 50%) into the account over a specified time period (generally 2 – 4 years). Once the required amount has been deposited, your debt negotiators communicate with your creditors to settle your balances to reduced and \”agreed-to\” amounts. If your creditor(s) agree to the reduced amount, you must pay what you owe on the scheduled date.

Using the example above, your negotiators require you to deposit $4,500 (50% of your debt) into a trust account. If you deposit $250 every month into the account, it will take you 1 year and 6 months to reach $4,500.

In addition to the $4,500 that you deposit into the trust fund, you will also pay a fee to the debt settlement company for its services. Let\’s say that the fee is 50% of the settled amount ($4,500), or $2,250. Using this example, you would potentially come out ahead by using debt consolidation instead of debt settlement. Just read the example below and see why.

Now, let\’s look at debt consolidation or interest rate arbitration. Debt consolidation takes your high-interest credit cards and consolidates them into one, lower-interest monthly payment that you can afford. The payment is made to a debt consolidator, who sends the funds to your creditors.

Using the example above, let\’s explain how debt consolidation is the best option for someone with a credit card balance of $10,000 or less. Suppose that a debt consolidator negotiated a new blended interest rate of 10 percent on your $9,000 credit card debt. If you make a $250 fixed payment every month, it will take you 3 years and 7 months to pay off your credit cards. You will pay $1,638.52 in interest, in addition to the $9,000 that you already owe. That\’s a grand total of $10,638.52.

Let\’s compare debt consolidation with making the minimum monthly payments.

Originally, you made the minimum required monthly payment at 21 percent interest. Under debt consolidation, you are paying a $250 fixed rate each month at 10 percent interest.

Originally, it would have taken you 24 years and 2 months to get out of debt. Under debt consolidation, it will take you 3 years and 7 months to become debt free. This is a difference of 247 months (20 years and 7 months).

Originally, you would have paid $13,480.63 in interest, in addition to the $9,000 that you already owed. That\’s a grand total of $22,480.63. Under debt consolidation, you will pay $1,638.52 in interest, and a grand total of $10,638.52

The net difference in interest payments is a staggering $11,842.11.

Now let\’s compare debt consolidation with debt settlement.

Using the example above, you would pay the debt settlement company $2,250 for its services. Using debt consolidation, you would pay $1,638.52 in reduced interest. That\’s a net difference of $611.48. You would come out $611.48 ahead by using debt consolidation.

This article has discussed how debt consolidation is sometimes a better option than debt settlement. If you are having debt problems, now might be the time to stop this destructive cycle and get the help you need from a debt settlement or debt consolidation program. These two debt relief options help millions of people annually.

Gregory DeVictor is a professional writer who has been developing and marketing websites since 1999. As a debt settlement consultant, he has a knowledge of the inner workings of the debt negotiation process. Learn how to become debt free in 2012 with the help of a trusted and FTC-compliant debt settlement company.

Gregory DeVictor is a professional writer who has been developing and marketing websites since 1999. As a debt settlement consultant, he has a knowledge of the inner workings of the debt negotiation process. Learn how to become debt free in in 2012 with the help of a trusted and FTC-compliant debt settlement company at: http://www.debt-relief-advice.com/debt_settlement_advice.htm

Author Bio: Gregory DeVictor is a professional writer who has been developing and marketing websites since 1999. As a debt settlement consultant, he has a knowledge of the inner workings of the debt negotiation process. Learn how to become debt free in 2012 with the help of a trusted and FTC-compliant debt settlement company.

Category: Finances
Keywords: debt,debt consolidation,consumer credit counseling,credit card debt,credit help,debt free,debt help