What is the Difference between Debt Settlement and Debt Consolidation?

Have you been waiting years for an overdue account to be settled? Are you ready to move on from sending yet another invoice stamped “late”? Looking for information on what may be coming next?

As a creditor, you should know people who owe you money and are struggling with other debt may pursue settlement or consolidation. You also need to know what these options mean for you.

Debt Consolidation involves moving all debt into a single account with a lower payment and more relaxed interest rate. It’s a safe and manageable option for many people feeling the pressure of multiple, high interest payments.

In a consolidation scenario, the debtor may eventually pay the entirety of their debt over several years, but end up paying less overall due to lower or no interest. A debtor may choose a debt consolidation service, or take out a loan to cover all of their debt. In either case, the result is very similar.

What do you need to know about debt consolidation as a creditor?

You could  receive the full amount owed on an account to settle the matter at once. Although you’d benefit from interest with drawn-out payments, the lump sum cash flow is a significant benefit to your company and marking the account closed will be satisfying.

Debt Settlement involves creditor and debtor negotiating a lump sum payment to close the account for significantly less than what is owed. This negotiation can occur directly between the two parties, or through a settlement company.

Settlement can seem like a good option for anyone having a hard time making payments on multiple accounts. However, it can be a long process for the debtor and take a huge bite out of a healthy credit score.

What do you need to know about debt settlement as a creditor?

A settlement offer might seem like an unfair deal for the creditor. But if the potential alternative is nothing, it’s worth thinking over the offer. The lump sum cash flow does have its appeal, too.

If you receive a settlement offer directly from a debtor, check the credit history to assess the status of other accounts. If your account is the only one the debtor has not been keeping up with, you might reject their offer or counter-offer.

When a settlement company makes an offer, know your debtor has been paying into it for months, trying to come up with as much as they can. That doesn’t mean you have to accept the offer, but it’s something to consider.

If you’re unsure what options are best for your company, reach out to MMRHM, P.C. for debt collection in Michigan. We can advise you on any offers you receive, how to proceed on delinquent accounts, and represent you in any other way you need.