If you're presently having problems with your credit card debt, perhaps you're thinking about applying for a debt consolidation loan or looking at the option of credit card debt settlement. Both a loan and a settlement are methods of debt reduction but is there a difference between the two? If so, what are these differences?

Simply put, a debt consolidation loan is a loan that you take out to pay of all of your debts at once. If you own several credit cards and you have a large outstanding balance on each, this may just be the more practical choice for you. With a debt consolidation loan, all your credit card debts are consolidated or combined into a single debt with only one, low interest rate to pay.

What about debt settlement? A settlement involves a negotiation between you, the credit card holder and your credit card company. If you are experiencing financial crisis due to uncontrolled circumstances, you can actually ask for a settlement in the hope that your credit card company would be considerate enough to grant your request. For example, if you owe $6,000, your credit card company may allow you to settle your debts by paying at least half or a third of your total debts. So instead of having to pay $6,000 in full, you may be asked to submit only $3,000 or $4,000 according to your settled agreement. A debt settlement can also be referred to as a ?debt workout?, ?debt relief? or debt reduction.

Will a creditor agree to a settlement? This really depends on the situation. Usually, a creditor will give in to a settlement if the borrower is on the brink of bankruptcy. Since a bankruptcy often ends in total debt elimination, a creditor will prefer to make a settlement and take at least half or even just a portion of the debts owed. Otherwise, if the bankruptcy is approved, the lender will get nothing.

If a credit card debt settlement has been agreed upon, the borrower is expected to submit the agreed payment in a lump sum. This means, the borrower cannot pay in installments since part of the debt has already been forgiven. Nevertheless, if the debt owed involves a really large amount, the credit card company may agree to give you a repayment plan. This would depend on the lender's decision and the repayment period may range from three months, six months or even a year.

Take note that a debt settlement will often appear on your credit report as ?paid as agreed? which will tell other creditors that you did not pay back the full amount you owed. A ?paid as agreed? is better than having the debt appeared as charged off on your credit report. Charged offs mean your creditors have given up all its efforts to collect debts from you because of your deliberate refusal to pay your debts.

If you are contemplating a debt settlement, getting the help of a legitimate credit counseling agency is recommended. Keep in mind not all credit counseling agencies will do a ?true settlement? for you. Many of them will simply ask that all late fees be waived and request a lower interest rate and call that debt settlement. You want to find one that will call your creditors and negotiate your debts so you see at 20- 75% reduction in the amount you owe. These companies may charge a higher fee for their services but the savings you receive more than make up for it. Also, make sure that the credit agency you'll work with is legitimate and really sincere about helping clients with debt problems. One way to do so is to check from the Better Business Bureau or to consult the FTC's list of government accredited credit counseling agencies.