Debt Consolidation, Negotiation, or Elimination: Which Should You Choose?

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As of the first quarter in 2017, American household debt topped $12 trillion. The main contributors to this debt are home mortgages, auto and student loans, plus credit card debt. With mounting debt and the lowest savings rate since 2005 of only 1.9%, many consumers are desperately searching for relief.

Ads, emails, robo-calls and online pop-ups bombard consumers with debt negotiation, consolidation, and elimination plans, often giving conflicting advice. So what is the difference between these three types of debt management plans?

Debt Negotiation/Settlement

Debt negotiation companies claim that they will negotiate with a consumer’s lenders to lower the total amount of debt owed for an upfront fee. Unfortunately, some consumers who paid for debt negotiation services found out that the company never contacted their lenders, but instead, took their money and ran.

Because the debt negotiation company made it sound like they had everything under control, the consumer stopped talking directly with their lenders and ended up slipping deeper into debt.

Also, in certain situations, debt negotiation may damage your credit further.

According to, “When you use one of these companies and then try to get a Conventional, FHA, or VA loan, you will be treated the same as if you had filed Chapter 13 bankruptcy. Mortgage underwriting guidelines for traditional mortgages will consider your credit trashed, so don’t do it. Real debt help is found only in changing your behavior.”

Debt Consolidation

Debt consolidation companies offer to roll up various debts allowing the debtor to make one lower payment to the company, rather than many payments to the different lenders.

While debt consolidation can make paying monthly bills more manageable, some companies tack on high fees and charge exorbitant interest rates, which means the consumer is paying much more in the long run.

Debt Elimination

Companies that offer debt elimination rely on many different schemes but they all hinge on the notion that credit lines are illegal. Debt elimination companies typically provide, for an upfront fee, a document for the lender that supposedly absolves the consumer of the debt.

Unfortunately, the document has no bearing whatsoever on the debt owed and consumers paying for such services have found that they’ve wasted money on a debt elimination scheme that would have been better spent on actually paying back their debts.

Consider the following tips, before contacting a debt management company:

  • Stay in contact with lenders and try to work out a plan with them first before enlisting outside help.
  • Always check the company out first with BBB. BBB Business Profiles on debt negotiation, consolidation, and elimination companies are available online for free at
  • Best practice: Start with a bona fide credit counseling service. Credit counseling services are often nonprofits that offer financial guidance for a small fee, or even for free. Reputable credit counseling services will help you create a budget plus provide coaching and training on how to manage your finances.
  • There is no easy fix for reducing debt and any company that makes huge claims and guarantees, probably can’t deliver. Sources: BBB North Alabama,

For more details on consumer debt and advice on dealing with debt including how to manage a budget, go to Avoiding Debt-Relief Scams, The Truth about Debt Management, Microeconomic Data: Household Debt and Credit Report,’s Personal Finance Statistics.

Also check out BBB Tips on Budgeting and Credit Counseling – BBB Tip: Create a Budget and Stick to It! and BBB Tip: Overwhelmed with Debt? Understand Your Options.

BBB New Release: Debt Consolidation, Negotiation, or Elimination: Which Should You Choose?

If you would like to report a scam, call your BBB at 256-533-1640 or go to the BBB Scam Tracker. To find trustworthy businesses, visit