CBS News
Debt consolidation vs. debt settlement: Which is better?
Getty Images/iStockphoto
Credit card debt can be costly. Between interest rates that average over 20% and payment structures that do little to address your principal balance, paying your credit card debt off could involve thousands of dollars in interest and decades of monthly payments. But, your credit card debt doesn’t have to cost you nearly as much money, nor take as much time to pay off.
Leading debt relief options may offer significant interest savings and even reduce your principal balance. And, debt relief services could shave years off of your payoff timeline. Debt consolidation and debt settlement are two popular debt relief options that may be able to do just that. But which is better? That’s what we will break down below.
Talk to a debt relief expert now to find out how much relief you could realize.
Debt consolidation vs. debt settlement: Which is better?
Debt consolidation and debt settlement are both viable options. And whether debt consolidation or settlement are better for you depends on your financial situation. But before you choose one or the other, it’s important that you know how each works.
- Debt consolidation: Debt consolidation is a process that consolidates multiple high interest debts into one account, presumably with a lower overall interest rate. This can be done through a debt consolidation loan (use one loan to pay off all of your credit cards) or as a service provided by a debt consolidation company (you send one monthly payment to the debt consolidation company and they send individual payments to your lenders on your behalf following interest rate negotiations). In either case, debt consolidation has the potential to offer significant interest savings, reduce your overall monthly payment obligation and get you out of debt faster than you would on your own if you just made minimum payments.
- Debt settlement: Debt settlement is a service through which expert negotiators attempt to negotiate your principal balance down. This process involves foregoing payments to your credit card companies and saving money for a settlement that’s later negotiated by an expert. Once complete, your debts will usually be reported as “settled for a lesser amount,” rather than “paid as agreed.” As such, debt settlement could have a significant impact on your credit score. Nonetheless, these programs are a valuable option for certain borrowers.
Find out how much money you could save with a debt relief service now.
When debt consolidation is better
“When your debt is a manageable amount and you’re able to make regular payments, it’s worth considering consolidation vs settlement,” explains Lamine Zarrad, CEO and founder of the credit-building tool, StellarFi. There are a couple of reasons that’s the case:
- Savings through interest reduction: Debt consolidation has no impact on your principal balance. Instead, your savings are usually created through the reduction of interest and implementation of a fixed payment plan (rather than variable payments based on your balance as is the case with credit cards). This may not lead to as much relief as a debt settlement service that negotiates away a portion of your principal balance but is generally fitting if you can afford your minimum payments.
- Quality loans often require good credit: If you choose the debt consolidation loan option, you’ll likely need a good credit score and positive borrower profile to access the best rates and terms. That may not be the case if you can’t afford to make your minimum payments, but it could be if you make your payments consistently. Though, good credit isn’t necessary if you choose the debt consolidation service option.
In either case, debt consolidation often leads to interest savings and more manageable monthly payments. And, since debt consolidation loans and programs typically come with a fixed payment plan and lower interest rates, you may be able to get out of debt faster while making lower total monthly payments – providing relief in terms of time and money.
When debt settlement is better
“Debt settlement can be seen as the last alternative for bankruptcy when you’re much further down the road,” says Zarrad.
One of the reasons debt settlement is usually the better option if you can’t afford your credit card payments is because these programs may provide a significant level of relief. Debt settlement services attempt to negotiate a meaningful portion of your credit card balances away – which can make a sizable difference in your minimum payments.
Also, if you’re missing payments, it’s unlikely that you’ll qualify for a debt consolidation loan. Moreover, if you’re facing financial difficulties, your debt settlement provider may be able to use your financial hardship to negotiate the best possible settlement.
On the other hand, it’s important to weigh the pros and cons before you sign up for this type of service. Debt settlement usually damages credit scores. Though, you may be able to rebuild your score once your debts are settled, that process could take a few years.
The bottom line
Debt consolidation and debt settlement are both effective ways to eliminate credit card debt. The better option for you depends on your financial situation. If you can make your minimum payments each month, but don’t see a way out of debt anytime soon, debt consolidation will likely be fitting. If you’re struggling to make your minimum payments, debt settlement may be your better option. In any case, you should reach out to a debt relief expert now to save time and money as you pay off your credit card debt.
Legislation to expand Social Security benefits to millions of Americans passed the U.S. Senate early Saturday and is now headed to the desk of President Joe Biden, who is expected to sign the measure into law.
Senators voted 76-20 for the Social Security Fairness Act, which would eliminate two federal policies that prevent nearly 3 million people, including police officers, firefighters, postal workers, teachers and others with a public pension, from collecting their full Social Security benefits. The legislation has been decades in the making, as the Senate held its first hearings into the policies in 2003.
“The Senate finally corrects a 50-year mistake,” proclaimed Senate Majority Leader Chuck Schumer, a Democrat from New York, after senators approved the legislation at 12:15 a.m. Saturday.
The bill’s passage is “a monumental victory for millions of public service workers who have been denied the full benefits they’ve rightfully earned,” said Shannon Benton, executive director for the Senior Citizens League, which advocates for retirees and which has long pushed for the expansion of Social Security benefits. “This legislation finally restores fairness to the system and ensures the hard work of teachers, first responders and countless public employees is truly recognized.”
The vote came down to the wire, as the Senate looked to wrap up its current session. Senators rejected four amendments and a budgetary point of order late Friday night that would have derailed the measure, given the small window of time left to pass it.
Vice President-elect JD Vance of Ohio was among the 24 Republican senators to join 49 Democrats to advance the measure in an initial procedural vote that took place Wednesday.
“Social Security is a bedrock of our middle class. You pay into it for 40 quarters, you earned it, it should be there when you retire,” Ohio Senator Sherrod Brown, a Democrat who lost his seat in the November election, told the chamber ahead of Wednesday’s vote. “All these workers are asking for is for what they earned.”
What is the Social Security Fairness Act?
The Social Security Fairness Act would repeal two federal policies — the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) — that reduce Social Security payments to nearly 3 million retirees.
That includes those who also collect pensions from state and federal jobs that aren’t covered by Social Security, including teachers, police officers and U.S. postal workers. The bill would also end a second provision that reduces Social Security benefits for those workers’ surviving spouses and family members. The WEP impacts about 2 million Social Security beneficiaries and the GPO nearly 800,000 retirees.
The measure, which passed the House in November, had 62 cosponsors when it was introduced in the Senate last year. Yet the bill’s bipartisan support eroded in recent days, with some Republican lawmakers voicing doubts due to its cost. According to the Congressional Budget Office, the proposed legislation would add a projected $195 billion to federal deficits over a decade.
Without Senate approval, the bill’s fate would have ended with the current session of Congress and would have needed to be re-introduced in the next Congress.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
CBS News
Saturday is the winter solstice and 2024’s shortest day. Here’s what to know about the official start of winter.
The 2024 winter solstice, the shortest day of the year, happens on Saturday, Dec. 21, in the Northern Hemisphere. The celestial event signifies the first day of winter, astronomically.
What is the winter solstice?
The winter solstice is the day each year that has the shortest period of daylight between sunrise and sunset, and therefore the longest night. It happens when the sun is directly above the Tropic of Capricorn, a line of latitude that circles the globe south of the equator, the National Weather Service explains.
The farther north you are, the shorter the day will be, and in the Arctic Circle, the sun won’t rise at all.
How is the day of the winter solstice determined?
The winter solstice occurs because of the Earth’s tilt as it rotates around the sun.
When the Northern Hemisphere tilts away from the sun, the nights last longer. The longest night happens on the solstice because the hemisphere is in its furthest position from the sun. That occurs each year on Dec. 21 or 22.
This year, it falls on Dec. 21 at 4:21 a.m ET, to be precise.
On the summer solstice, when the northern tilt is closest to the sun, we have the longest day, usually June 20 or 21.
National Weather Service
The solstices are not always exactly on the 21st every year because the earth’s rotation around the sun is 365.25 days, instead of 365 even.
Will days start getting longer after the winter solstice?
Yes. Each day after the solstice, we get one minute more of sunlight. It doesn’t sound like much, but after just two months, or around 60 days, we’ll be seeing about an hour more of sunlight.
When will winter officially be over in 2025?
The meteorological winter ends on March 20, 2025. Then, spring will last until June 20, when the summer solstice arrives.
How is the winter solstice celebrated around the world?
Nations and cultures around the world have celebrated the solstice since ancient times with varying rituals and traditions. The influence of those solstice traditions can still be seen in our celebrations of holidays like Christmas and Hanukkah, Britannica notes.
The ancient Roman Saturnalia festival celebrated the end of the planting season and has close ties with modern-day Christmas. It honored Saturn, the god of harvest and farming. The multiple-day affair had lots of food, games and celebrations. Presents were given to children and the poor, and slaves were allowed to stop working.
Gatherings are held every year at Stonehenge, a monumental circle of massive stones in England that dates back about 5,000 years. The origins of Stonehenge are shrouded in mystery, but it was built to align with the sun on solstice days.
Andrew Matthews/PA Images via Getty Images
The Hopi, a Native American tribe in the northern Arizona area, celebrate the winter solstice with dancing, purification and sometimes gift-giving. A sacred ritual known as the Soyal Ceremony marks the annual milestone.
In Peru, people honor the return of the sun god on the winter solstice. The ancient tradition would be to hold sacrificial ceremonies, but today, people hold mock sacrifices to celebrate. Because Peru is in the Southern Hemisphere, their winter solstice happens in June, when the Northern Hemisphere is marking its summer solstice.
Scandinavia celebrates St. Lucia’s Day, a festival of lights.
The “arrival of winter,” or Dong Zhi, is a Chinese festival where family gathers to celebrate the year so far. Traditional foods include tang yuan, sweet rice balls with a black sesame filling. It’s believed to have its origins in post-harvest celebrations.
Researchers stationed in in Antarctica even have their own traditions, which may include an icy plunge into the polar waters. They celebrate “midwinter” with festive meals, movies and sometimes homemade gifts.