Debt settlement is the process of offering a lump sum in one or just a few payments that is smaller than the outstanding debt.

Debt Consolidation is the process of “working with your creditors” to establish a more manageable payment plan over a long duration.

There are a number of issues that should be considered when thinking about Debt Consolidation:

• It only is an option for a small segment of consumers.
• It involves a long duration (usually years) thereby increasing the likelihood of default due to a life event such as health issues or job loss.
• It typically only reduces the interest rate, not the balance, you have to pay the fees to the company negotiating, and thus is usually financially the weakest of all debt options.
• Oftentimes if you deal with a less than reputable debt consolidation company they do not tell you if one of your debts does not want to negotiate.  Anecdotally we have had more clients than we can count relate stories to us of a creditor not accepting the deal, the client never knew, that is until they were served with a lawsuit.
• Sometimes people think that their monthly payments to the Debt Consolidation companies are going to their creditors right away when in fact the company is taking the payments, subtracting their fees, and saving the rest of the money until they have enough to offer lump-sum payments (i.e. Debt Settlement) to the creditors.  There is no guarantee in this instance that any of the debts will be settled, even after years of making payments, and more importantly there is no protection, one or more of your creditors can and typically do initiate a lawsuit in the mean time.
• DO NOT EVER take a secured debt  (like a 2^nd Mortgage or HELOC on your home) to pay off your unsecured debt.  Ok, that might be an overstatement and there could be a situation where doing such a thing makes sense, but we have yet to see it.
• DO NOT EVER take out a loan or cash out a retirement to pay off your unsecured debt.  Ok, this isn’t quite as bad as taking a 2^nd out on your home, but it still ranks high.  Before you waste your retirement make sure this is your only option.
• DO NOT EVER borrow money from a family member or friend at a lower rate to pay off your unsecured debt without speaking with an attorney.  While this may be a good option it may shut the door forever on your legal remedies.      

The bottom line is that Debt Consolidation works well and is only a good option for a very small segment of the consumer.  Typically the best person served by Debt Consolidation is:

• Higher income household;
• Someone who can still pay with reduced interest rates (typically because the banks have just bumped them up 15%);
• Limited or no access to a lump sum for a traditional settlement offer.
• A person for whom bankruptcy (likely a Chapter 13 Reorganization) is not an option.
• Someone with access to a lower interest rate unsecured loan either from a bank or family member.  Though see the above warning about borrowing from family members.

In limited circumstances it is actually the best option.  However before pulling the trigger the consumer should seek legal advice so as to determine what course of action he or she should take.