Choosing the right debt reduction program can be a challenging task.

In order to be effective, it is important that the program you choose is appropriate to the type of debt you are facing, as well as the repayment plan that matches your financial situation.

The most popular debt reduction programs are debt consolidation and debt settlement. Let’s take each of these programs into consideration to see which is more suitable for you.

Debt Consolidation

Debt consolidation program is also known as a debt management loan. For those who owe different creditors and lending companies, debt consolidation program can be a great help.

By enrolling in a debt consolidation program, you are combining your debts with different creditors into a single loan. This way, you won’t have to submit your monthly payment to different creditors. Instead, you’ll be submitting your payments to a single company – your debt consolidation agency.

A loan consolidation can make debts more manageable. You don’t have to worry about deadlines. Furthermore, you will not be charged with multiple interest rates from each of your creditors. With debt consolidation, the interest rate on your loan can be much lower, allowing you to save a significant amount from your budget.

Debt Settlement

Just as the name suggests, a debt settlement agency helps you settle or negotiate debts with creditors.

A debt settlement or a credit counseling agency will talk to your creditors on your behalf to see if it’s possible to make certain modifications on your existing terms of payment. Credit counseling agencies will help you reach a negotiation with your creditor so that you can have easier repayment terms. In most cases, debt settlement can slash off 30% to 60% from your total debts.

Debt settlement companies can be good negotiators. Creditors are usually more willing to lower their rates or make modifications on payment terms in response to a credit counseling agency’s request. You can also try to negotiate on your own. Take note that when a debt settlement has been agreed, you are expected to submit your payment in lump sum.

For those who have fallen behind their payments for months and are really swamped with bad credit, a debt settlement can be their best bet in reducing debt. People who are experiencing financial crisis due to lost of job or other serious situations that are beyond control, consulting a debt settlement company may be best.

Which Should You Choose?

Both programs can be effective in helping you recover from your debt problem. If you’re not sure which one will best work for your present financial situation, a credit counseling agency can give you specific advice on how to manage debt correctly. However, check the reputation and background of the agency and see to it that you’re dealing with a trusted credit counselor.