Comparing Debt Settlement and Debt Consolidation

By Bobby Zangrilli

A lot of authors have dealt with the issue of debt consolidation vs. debt settlement in the past, and it’s pretty clear across the board that using a debt consolidation loan that is secured by your home is the better debt resolution product if you have that option (and this is coming from someone within the debt settlement industry). It does not affect your credit negatively, you save money, and the likelihood that you’ll default and lose your home is extremely low (the national default rate is 0.15% on home equity loans).


That being said, although it’s clear that in most cases a home equity debt consolidation loan is a better choice, it’s by no means the best choice. The fact of the matter is this: although it’s an effective way to deal with high interest credit card debt, you still don’t save that much money relative to debt settlement. With debt settlement, however, you’re using an approach that will for the most part prevent you from being able to obtain credit during the course of the program, possibly longer. So what then is the best choice? The answer is simple: using debt settlement in conjunction with a debt consolidation loan.


How is this possible?


Assuming you have enough equity in your home to begin with, you get a debt consolidation loan while your credit is still good, sign up with a debt settlement company, wait until they’ve negotiated the balances down, and then settle the debt with the money from your consolidation loan. Typically, this process takes as little as 2 to 3 months to complete, and you can save as much as 50 percent off your balance without taking a severe credit hit. Moreover, the already low likelihood of any legal action occurring from going past due is even further reduced, and since you won’t need to take a debt consolidation loan for the full balance, the already low likelihood of default and foreclosure of your home is also further reduced because your monthly payment won’t be nearly as high.


For the more financially savvy consumers out there that have equity in their homes and good enough credit to take advantage of it, debt settlement with a debt consolidation loan is the best choice.

Robert Zangrilli is the CEO of Franklin Debt Relief. FDR's "New Deal" program is a leading debt settlement consolidation program for consumers with home equity and high credit card debt. For more information on services to reduce debt, visit Franklin Debt Relief's website.