Once debt has reached a critical level, many Arkansas consumers are unable to think of little else. Anxiety over how to pay the bills can be crippling to one’s health, happiness and the well-being of interpersonal relationships. Once this point has been reached, many will look for relief in the form of debt consolidation or debt settlement options. Understanding how each works is crucial in making the best possible decision.

Debt consolidation is typically a new line of credit that is opened for the purpose of paying off other, higher interest forms of debt. The borrower can then make one monthly payment on a loan with a more manageable interest rate. That said, consolidation offers are not all created equally; some have hidden fees and costs that add up, while others have very strict terms that must be adhered to in order to maintain the lower rate.

In addition, loan consolidation is an area of finance in which scams are prevalent. Unscrupulous individuals know that people who are deeply indebted are eager for any form of relief, and a wide range of scams are structured to take advantage of that fact. Consumers must tread very carefully when shopping for a loan consolidation package. It is important to work with lenders and organizations that are legitimate and trustworthy.

Debt settlement, in the other hand, offers a far faster and more certain path toward debt relief. In many cases it is possible to work directly with lenders to negotiate a favorable settlement by which the debtor pays an agreed-upon amount to have the debt settled in its entirety. For some Arkansas consumers, personal bankruptcy is another option, and one that can also lead to the fast and permanent elimination of many forms of consumer debt.

Source: Time, “Debt Consolidation Tips and Traps to Avoid“, Carmen Chai, June 3, 2015