Both debt consolidation and debt negotiation are methods in which a person struggling to pay debts can reach some sort of alternate agreement with their creditors. This is common for people who have many different debts from different sources, such as multiple credit card debt. The larger the individual debt, the more difficult it is to enter into any sort of debt assistance program.
Debt Assistance
Both debt consolidation and debt negotiation are types of debt assistance. When a debtor loses the ability to make payments on the debt, it is a loss for both the debtor and the creditor. Debt assistance programs essentially reorganize the debt and work out new deals so that the creditor gets at least a little money back, and the debtor does not suffer the full financial ramifications of being unable to pay their debt at all.
Consolidation
Debt consolidation is conducted through a third-party consolidation company, and combines all the different types of debt into a single plan. Instead of paying many different debts, the debtor pays only one large debt a month, but usually at a lower and more manageable amount with a lower interest rate. The consolidation company interfaces with creditors and stops any creditor harassment by working out the deal. There is a monthly administrative fee for this service, often around $30.
Negotiation
Like consolidation, debt negotiation is done by a third-party company that interfaces with creditors, but the process is different. If a debtor is unable to consolidate, a debt settlement company will agree to take the debt entirely and pay the creditors an agreed amount of money. The debt then belongs to the negotiation company, which often cuts the debt in half and provides a more reasonable interest rate for the debtor. The debtor must meet certain qualifications for this process.
Advantages
Consolidation is useful because it rids the debtor of harassing phone calls and makes debt easier to keep track of and manage. It is especially useful if one or more debts carries a very high interest rate. Negotiation does not always require the monthly service charges that consolidation includes, and it shifts the debt entirely to a different company that is likely to be more reasonable.
Considerations
Debt negotiation can be very damaging to credit, compared to consolidation. Some negotiation companies will, for an extra charge, remove some negative reports that can do damage to credit scores, but the act of debt settlement can still be very damaging. Consolidation is usually considered a better way to get out of debt, but is also more expensive.
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