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Ways to Reduce Your Debt -
Ways to Reduce Your Debt
elearnmarkets | Published: 30 Nov, 2017  | Source :

Consumer debt is increasing tremendously in every level of our society from an individual to the Government. The increasing use of credit card without having capacity to repay, has become inevitable for many especially for younger generations. Many consumers faces financial struggle and are unable to repay their debt due to careless use of credit card, unemployment, health issues, or sudden changes in family situation etc.

There are various Debt relief options available to ease your financial stress and improve your financial health.

Debt settlement and debt consolidation are two common debt relief financial solutions, which may help to get out of your financial struggle. Although both the options can reduce your debt, but each will have different impact on your future credibility. So before approaching towards any of the either option be aware of pros and cons associated with each of them.

Debt Settlement

Debt settlement also known as debt negotiation, is a method where settlement is done with the unsecured creditors in which both the parties negotiate on the amount of debt to be repaid and rest is to be forgiven by the creditors. By using debt settlement, consumer can easily save around 40% to 60% of total outstanding debt, thereby improving their debt-to-income ratio.

After the settlement is reached, consumer pays the reduced agreed amount in a lump-sum payment, or over a structured period of time as decided.

This method helps consumer to clear their debt efficiently and speedily instead of declaring bankruptcy and get back on financial track gradually.

Debt settlement can be done by your own, or with a reputed debt settlement company.


- Significantly reduce your total debt.

- Instant cut down your monthly financial budget.

- Faster than a debt payment plan.

- The negative impact on credit profile is less than that of a filing bankruptcy.


- Continuous call from creditors during the negotiation process or creditors can pursue legal action.

- Failing to make minimum payment negatively impact your credit rating.

- Service fees to be paid to the debt negotiation company.

- Income tax might have to be paid on the forgiven debt amount.

Debt Consolidation

Debt consolidation is the process of accumulating numerous debts into one loan, hopefully at reduced interest rate with one lower monthly payment and fixed payment plan. Unlike debt settlement, in this method the existing assets are used as collateral for consolidation loan.

Thus debt consolidation program involve transferring all unsecured loan into a secured loan that include repayment of the entire outstanding debt in a fixed installment over several years along with interest on loan and administrative fees.

Debt consolidation service companies helps to consolidate loan by charging fees apart from interest on loan. While some people undertake this process on their own by using the proceeds of home equity loan or a personal loan to repay other debts.


- Fixed defined monthly payment, which provide ability to repay entire debt over a specific period of time.

- Interest rates on debt consolidation loans are generally lower than interest on credit cards.

- Interest may be tax-deductible in case of using a home equity loan to consolidate debt.

- Credit score is not much effected as you pay all your outstanding debt.


- People with poor credit or lower income can’t choose this option as they may not have adequate cash flow to make minimum monthly payment.

- Timeline to repay debt consolidation loan is longer to ensure all your creditors are paid full. This may lead to ultimately making more payment as you have to pay service charges to debt consolidation Companies.

- Loans secured against a home or vehicle put those assets at risk if you fail to make timely payments on the loan.

- You will not reduce your overall outstanding debt.

Which is the Best for Your Situation?

Debt Settlement is a viable option for people who are facing trouble to make minimum monthly payments and want to get out of their financial stress soon. However, people who are not in adversity, and have the ability as well as self-discipline to pay down their debt might consider debt consolidation to be a feasible option.


Publications at are prepared to deliver general academic information. It does not intend to provide any professional advice relating to any situation or content. Nothing is explicitly or implicitly guaranteed with respect to the information provided herein.

About elearnmarkets is a young vibrant company established with the vision of taking online financial education to a new level, both in India and abroad. Guided by their mission of spreading financial literacy, they are constantly experimenting with new education methodologies and technologies to make financial education convenient, effective, and accessible to all. They provide courses on basic finance, Fundamental Equity research, Technical analysis, Economics, Derivatives, Currencies and Commodities and many of their courses are conducted by reputed market experts and certified by leading exchanges like NSE, MCX and NCDEX.

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.