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You’re trying to pay down debt. Should you use debt consolidation or debt settlement?
They sound similar, but they mean two very different things — and one can create more trouble for you.
Why you might choose it:
To get a lower interest rate than you’re paying now, which saves you money and can help you pay off your debt sooner
To cut the number of payments you’re juggling
When the debt you're trying to pay down is a manageable amount and type
» How to pay off your debt: A three-step strategy
Debt settlement is risky because you withhold payments from a creditor and then, once your account is severely delinquent, try to negotiate a smaller payment to satisfy the debt.
But withholding payment trashes your credit scores and opens you to being sued for payment — and there’s no guarantee that the creditor will agree to settle.
You can try debt settlement on your own or hire a company, but beware: This field is rife with shady players. The Federal Trade Commission recently ordered 11 such companies to halt their marketing, saying they took tens of millions of dollars from consumers and gave them little benefit.