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Publication #FAR9041

 

Debt Consolidation Company vs. Debt Settlement Company 1

Donna Davis2

Figure 1. 
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I've observed recently that five or six years ago television advertising was inundated with messages about how you could do your own investing, and who knows … perhaps you'd be so successful you could buy your own island. Jumping ahead to current media messages, TV advertising seems to have shifted to how to manage your debt. If your family is wrestling with debt and how to best handle it, discerning between the options of consolidation or working with a debt settlement company can get somewhat confusing.

According to Jim Garnett, member of the Institute of Consumer Financial Education Board of Advisors and the Education Coordinator for Consumer Credit of America, it's important to understand the difference. Garnett points to a number of distinctions between consolidation and settlement. For example, consolidation clients pay off their entire debt in full, while debt settlement clients pay off a percentage of their debt, on an average of 50 cents on the dollar. However, high interest and extra fees can add up while debts are being settled, in some cases doubling the costs to the consumer by the time the debt is paid off. Likewise, upfront costs, late, and over-the-limit fees, credit impact, and tax liabilities can have significant impact on the long-term effects debt can have on a family. So if you're considering consolidation or settlement, be sure to understand exactly what each entails to ensure a successful debt recovery (Institute of Consumer Financial Education, 2005).

Listening, learning, and living together: it's the science of life. "Family Album" is a co-production of University of Florida IFAS Extension, the Department of Family, Youth and Community Sciences, and of WUFT-FM. If you'd like to learn more, please visit our website at http://www.familyalbumradio.org.

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Reference

Institute of Consumer Financial Education. (2005). Debt consolidation company vs. debt settlement company. Retrieved August 6, 2007, from http://www.financial-education-icfe.org/financial_news_press_releases/2005/20050813_debt_consolidation_company_vs_debt_settlement_company.asp

Footnotes

1.

This document is FAR9041, one of a series of the Family Youth and Community Sciences Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Broadcast as program 254 and published March 2009. Reviewed March 2012. In the interest of time and/or clarity, the broadcast version of this script may have been modified. Visit the EDIS website at http://edis.ifas.ufl.edu.

2.

Donna Davis, senior producer, Family Album Radio, Department of Family, Youth and Community Sciences, Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL 32611.

The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. For more information on obtaining other extension publications, contact your county Cooperative Extension service.

U.S. Department of Agriculture, Cooperative Extension Service, University of Florida, IFAS, Florida A. & M. University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Nick T. Place, Dean.