Debt consolidation is a widely understood process which involves consolidating a lot of existing debts into a single monthly payment. In the UK, consolidation is generally understood to involve taking out a debt consolidation loan to pay off the old debts, but in the US the term means the same as a debt management plan or debt payment plan.

The usual process of debt consolidation will be offered by a debt management company, who will negotiate with your creditors to get new terms agreed for paying back the money you owe. They will deal with each of your creditors for you and come up with new deals which often include a reduction in your interest payments, late payment fees, etc. The idea is that they stop your debt from growing any larger and agree a new repayment structure which brings the monthly payments down to an amount you can afford.

If you have approached a debt management company and found that you just do not have enough spare income to meet the monthly payments required, all is not lost. There is another solution that is designed for people with serious debts who can not afford the payments on debt consolidation. This process is called debt settlement or negotiation. The equivalent to this in the UK is called an IVA.

Debt settlement is different to when you consolidate your debts because it involves an actual reduction in the total amount of money that you owe. When you consolidate your debts you still pay back your creditors in full, but when you negotiate settlements you are seeking agreement from your creditors to write off a large part of your debt in exchange for paying back the reduced amount quickly and often in a lump sum.

When you start the settlement process you stop paying your creditors directly, while an experienced negotiator approaches them to strike deals about settling your debts. You keep paying out a monthly amount, but it goes into a holding account instead of to your creditors. The negotiator will use their experience to judge exactly how and when to make offers to get the biggest possible reduction on what you owe. By writing off a good part of your debt they are able to bring your debt back to being an amount that you can afford to pay off over a period of time. The monthly payments you make are saved up and used to pay off each creditor as deals are reached.

Like when you consolidate your debts, debt settlement can only be used for what are known as unsecured debts, which includes things like personal loans and credit cards, but not secured debts that are tied into assets, such as your mortgage. For any type of debt plan you will need a certain amount of money spare each month to put towards your debt payments, but debt settlement is for people who do not have enough to consolidate them in the usual way.

Whether you want to consolidate your debts or seek debt settlement, you must take care to find a company that are reputable and who will offer you the best solution for your situation, rather than an over-expensive scheme that is in their own interests rather than yours. You can avoid the less reputable companies quite easily by following recommendations for well established organizations with strong track records of successfully helping people. When you have a shortlist of good companies, you should apply to two or three and then compare what they can offer you. This can be done easily and quickly online.

Author's Bio: 

Read reviews and recommendations for reputable online debt settlement companies on the author's Debt UK/US website. K D Garrow has worked as a senior manager with significant financial responsibility for the last twenty years. His website offers free, unbiased advice on a range of debt related issues, including the best debt management companies, budgeting advice, loans and bankruptcy.