Many people ask us; what is the difference between debt negotiation, debt settlement, debt relief or credit card debt negotiation. In essence, these words are very interchangeable. They differ a great deal however from that of debt consolidation. Debt negotiation companies deal directly with each creditor. The take the amount you originally owe, (say $10,000 to company A), and negotiate that down to $.20 to $.40 cents on the dollar. You would end up paying that lower amount. If say, you had 5 credit cards owning a total of $30,000, there is a very good chance this could be negotiated down to at least half that or $15,000. That way, you are paying off a smaller dollar amount over a shorter period of time.

Debt consolidation, on the other hand, simply takes your bills from you. You make one monthly payment to them, and they simply turn around and just pay each creditor each month, exactly the same you have been doing. They may be able to lower you interest rate a few points, however you are still paying off the entire balance owed. These companies are reimbursed by the credit card companies (usually 15 cents on the dollar) for every dollar they collect from you.

Again, if you are the typical American family who has on average 5 to 8 credit cards, and owes approximately $32,000 in debt, this can be reduced to close to $16,000 through negotiations. If you were able to pay say $500/month, you would be completely debt free in 32 months ($16,000 divided by $500). If you went with a debt consolidation company, with the same $32,000 in debt and paid the same $500/month, at 18% interest, it would take you approximately 312 months to pay off this same amount of debt.

So I find myself stuck in what I call “the debt trap” and I have two options to help me become completely debt free. I can only afford $500/month. Do I want the debt relief plan that takes me 32 months to become debt free or do I take the debt consolidation plan that would take me 312 months to become debt free?