Successfully managing debt can be a tricky endeavor in many cases. With many forms of debt carrying high interest rates, repaying an outstanding balance can take a considerable amount of time, especially for those struggling just to keep up with interest payments.

However, borrowers have two major options of making debt repayment more convenient and accessible: debt consolidation and debt settlement. But which option is the safest and most effective? Learn more about the benefits and risks of both debt consolidation and debt settlement and which option would be ideal for your circumstances.

Debt Consolidation

For those with a burdensome amount of high interest debt, debt consolidation can be a convenient way to make repayment more affordable. Basically, debt consolidation involves taking out a low interest loan to repay an outstanding high interest debt.

While borrowing more money may not seem like a wise solution, replacing a high interest balance with a low interest one can actually save borrowers a considerable amount of money. Plus, with a lower interest rate, borrowers will be paying much less on interest over the course of the new loan’s life span.

Debt Consolidation Risks

Although it can be incredibly beneficial, debt consolidation is not without some level of risk. In order to compensate for the risk of lending to a borrower who needs additional assistance repaying his or her loan, debt consolidation services typically require that borrowers put forth some collateral, such as their homes or cars. If the borrower fails to keep up with payments on the new consolidation loan, the collateral will be repossessed.

When to Get Debt Consolidation

Due to the risk of losing collateral, borrowers should only secure these consolidation loans when absolutely sure they can keep up with payments. While this method can be detrimental to borrowers who default on their loan, responsible borrowers that can maintain payments over the loan term have much to gain, saving money on accruing interest and having debt conveniently lumped into one low interest balance.

To obtain debt consolidation, agencies like National Debt Relief provide safe and reliable debt consolidation, helping borrowers to better manage their debt and lower their interest costs substantially.

Debt Settlement

Debt settlement involves making payments to a debt settlement company who will negotiate with the lender an agreement to waive or reduce the outstanding balance. Often, this means closing the account altogether.

Debt Settlement Risks

Unlike debt consolidation, debt settlement carries many inherent risks, and debt settlement services do not generally provide any benefits that borrowers could not negotiate for themselves. Not only does debt settlement include expensive fees, but borrowers can lose a significant amount of credit by resorting to this method. Furthermore, debt settlement companies must report to the IRS the amount of debt reduced, and borrowers will still be responsible for paying taxes on the total sum.

When to Get Debt Settlement

Debt settlement is rarely a recommended option for borrowers with financial difficulties. While those who cannot keep up with debt consolidation payments may consider seeking debt settlement, borrowers should be extremely careful of fraudulent or scamming companies claiming to work magic and eliminate large amounts of debt with minimal cost.

While debt consolidation and debt settlement may be viable options for those in debt, the best solution to debt relief is to simply keep current with payments on outstanding balances and pay off high interest debt as soon as possible. Unfortunately, this is easier said than done for many as the U.S. economy continues a shaky rebound following a crippling recession. When no other options are available, debt consolidation is a much safer and more reliable method of debt resolution than debt settlement. Remember, debt will not just disappear, and services claiming to do this should be treated with a healthy dose of skepticism.

Marcela De Vivo is a personal finance manager and debt crisis counselor. She has recently started blogging to share her expertise, and hopes that you enjoy this article.