Debt consolidation is done through companies that provide the opportunity to combine all of your monthly debts into one monthly payment at a reduced amount so that you can pay off your debts more easily and have some breathing room. You are still paying down your debts over time, but the interest and penalties are greatly reduced. Debt settlement, on the other hand, is the process of negotiating not just the interest and penalties but also the principal owed on all of your unsecured debts.

A debt settlement negotiator will negotiator will discuss your status with your creditors and offer to pay off your debts for what they call 'pennies on the dollar.' This means, simply, that most creditors would rather take $3,000 cash now than hope that over the next ten years they will eventually be able to get $9,000 out of you. They know that if you're using a settlement negotiator, you probably aren't a good risk for continuing payments.

You may be asking yourself, 'Gee, why doesn't everybody use a Debt Settlement Negotiator, since you pay a lot less on you debts?' Because it's not as easy as it sounds. There is a hefty cost in other areas. While debt consolidation salvages some of your credit rating because you are keeping current with your payments and you have made the decision to pay off your principal in full, debt settlement trashes your credit rating. Why? Because to pay the lump sum you need to pay off the settlement, and to establish that your finances are in dire shape and you cannot possibly pay the monthly payments, you first have to stop paying your bills for months. Collection agencies will write to you and call you. You may be threatened with legal action. This is not for the faint of heart.

• Negotiates with creditors to reduce interest rates and reduce or eliminate late fees and penalties
• Combines all non-secured debt into one lower, monthly payment
• Usually reduces what you pay monthly by about 20%-40%
• Charges a monthly service fee of about 10%
• Will provide letter of reference for your credit report
• Usually requires that you close all credit card accounts but one, which you may keep for occasional or emergency use

• Negotiates with creditors to determine what they'll take as a lump sum, one-time settlement of your debt
• Establishes an account you pay into for a period of time (often as long as a few years) instead of paying your bills. The money accumulates to be used to make the lump sum settlement payments
• Teaches you strategies for dealing with letters and phone calls from collection agencies and creditors
• Pays of the debt in full for from your account once you have put in enough to cover it, usually for 40%-60% less than the full amount of the debt
• The settlement negotiator usually makes a commission of between 14%-25% of the total settlement

• If you need some help through a tough patch and really want to pay off your debts, consolidation is probably your best bet. You will save on interest and penalties and not completely destroy your credit rating.
• If you have no chance of ever paying off the full amount of what you owe and see bankruptcy as your only solution, you may want to look into debt settlement negotiations. It cut what you will owe in half, which is a huge savings.
• If you are trying to salvage your credit rating to some extent, stick with credit counseling. Most counseling companies will right you a letter of credit, and when you have completed the program you will be able to reopen most of your credit card accounts.
• If you don't like confrontation and you can't stay the course ignoring collection agencies and angry creditors, don't try settlement - you have to spend months or years looking like you've skipped out on your obligations.
• If you're already behind on your payments and the collections agencies are already bothering you, there's nothing to lose by using a debt settlement negotiator. Since you aren't making the payments anyway, you aren't losing anything by going into a settlement program except reducing your debt load.

The final decision is yours, and you need to make the decision based on what best fits your financial situation and personal needs. It is also important to be aware of what fits your personality and tolerance for conflict. With pros and cons to both programs, no one can make the decision but you.