You can take care of your outstanding debt through different methods, two of which are debt resolution and debt settlement. Although people sometimes interchange these two terms, and although both debt resolution and debt settlement may reduce your debt, debt resolution and debt settlement technically are not the same. The method you use boils down to the need for legal representation.
Attorney Versus Settlement Company
In debt settlement, you usually don't have legal representation, as an independent settlement company talks with your creditor or lender. In some cases, you can even negotiate a settlement on your own without assistance from a settlement company. In debt resolution, an attorney, not you or a settlement company, does the negotiating. This means you may have better protection of your rights. Although many settlement companies have legal counsel, in a resolution, the attorney who works with you will represent you if you are sued or summoned to appear in court.
Trigger Points
With debt settlement, your account must reach a certain point of delinquency before the creditor or lender will consider a settlement offer. The amount of delinquency varies by creditor or lender, but usually you must be delinquent by 60 to 90 days before settlement is an option. With debt resolution, your attorney starts negotiating with your creditor or lender as soon as you enroll in the resolution program. It doesn't matter how delinquent you are or what you owe.
Because deliquency usually is the primary trigger for a settlement, settlement cases may take less time to resolve, as there really is only one point of conflict between you and the creditor. A resolution doesn't rely on deliquency, although it may address it -- it tackles many different aspects of your account and therefore can last longer than settlement.
Negotiated Items
Debt settlement companies aren't concerned with stopping interest from building. They only talk to your creditor or lender about reducing or eliminating the princial balance of your debt. With resolution, however, your attorney negotiates to reduce or eliminate both the principal and your interest.
Notedly, you can approach your creditor yourself or ask your settlement company to address the issue of interest or other terms that may benefit you, like a longer repayment term. However, an attorney is more likely to win an argument in your favor due to expertise and authoritative standing. The likelihood of you increasing savings thus is higher with resolution.
Impact on Credit
In general, debt resolution tends to have less of a negative impact on your credit compared to debt settlement. This is because debt settlement companies don't always negotiate for an upgrade in status to your account -- for example, "settled" to "paid in full." Lawyers who work in debt resolution almost always ask your creditor or lender for this upgrade and often get it. Your credit still suffers with debt resolution but not as much as if you used settlement.
Considerations
Sometimes the involvement of an attorney is the deciding factor in whether to use resolution or settlement. Those who cannot afford an attorney and cannot find a lawyer who will work pro bono -- that is, at no charge -- typically lean toward settlement. Settlement often is the better option for people whose debt case is fairly uncomplicated and who already have a basic understanding of their legal rights. Resolution is better for complex cases because you have access to a legal expert.
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