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Debt Consolidation Overview & Video

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Updated: Nov 14, 2014

Highlights

  • Debt Consolidation means different things to different people.
  • Learn your consolidation options so you can chose the one that fits your needs best.
  • There is no one-size-fits-all debt consolidation plan that works best for everyone.
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Understanding Debt Consolidation Options

Are you confused by the different definitions for debt consolidation?

Debt consolidation is a term used very broadly. It can refer to a debt management plan offered by a credit counseling service. It can mean a cash-out refinance loan or an unsecured loan to pay off debts. Or, it can be used to describe a debt settlement program.

Learn Your Debt Consolidation Options

We have screened debt relief providers who can help you get a .

Professional Debt Consolidation Options

Both credit counseling and debt settlement are options for resolving a debt problem that consolidate your payment. Neither one consolidates a debt.

However, in the debt relief industry, both are often referred to as programs that consolidate your debt.

Credit counseling and debt settlement programs both have you send a single monthly program payment that is used to take care of your debt, but your debts still are owed to your original creditors. If you are looking for this kind of solution to solve your debt problems, you can .

To be used most precisely, "debt consolidation" should be reserved for describing options that actually consolidate your debt, not just your payment. For example, say you owe three different credit cards $5,000 each. If you get a $15,000 loan from your bank that pays off all three credit card debts, leaving you with one debt of $15,000, you have truly consolidated your debt. You no longer owe your three original creditors, having consolidated them into one debt you now owe to your bank.

What is Debt Consolidation

Debt Consolidation Alternatives

The debt relief industry uses the phrase debt consolidation often, where it is used to describe both payment consolidation options and options that truly consolidate your debt. If you are looking to consolidate debt, because you have a debt problem, it is important to understand exactly how the term debt consolidation is used and how its use affects the pros and cons of each debt solution.

  • : Debt settlement provides an aggressive debt solution designed for people in a financial hardship who have trouble making their monthly payments or will soon have trouble making them. Debt settlement firms obtain reduced pay-off balances by negotiating with your creditors. Debt settlement harms your credit rating, but it is the cheapest way to get out of debt while avoiding bankruptcy. Debt settlement consolidates your payments, but not your debt.
  • : Credit counseling services provide two main services. They provide budgetary assistance after reviewing your finances with you. Credit counseling services also can work to establish a Debt Management Plan for you. In a Debt Management Plan, your interest rates are lowered, speeding up the time it takes you to get out of debt. A credit counseling service’s Debt Management Plan consolidates your payment, but not your debt.
  • : Both of these are true consolidation alternatives. To qualify for either, you have to have strong credit, qualifying income, and enough equity in your house to borrow against. Many people with debt problems cannot qualify for either of these consolidation alternatives.
  • : A Chapter 7 bankruptcy can wipe out your debts, if you qualify. A Chapter 13 bankruptcy restructures your debts. A Chapter 13 essentially is a payment consolidation option, as you will make one payment to the bankruptcy trustee, who will distribute your payment to your various creditors, whom you still owe.

Debt Consolidation Reviews

You shouldn't choose any particular debt consolidation option before you read reviews from people who tried that approach, so you can learn from their experiences.

Similarly, you should read reviews about particular companies you consider hiring. Reading debt consolidation reviews will help you weed out bad players. Pay closer attention to more recent reviews and keep in mind that the internet is a place that often draws more criticism about companies than praise.

Debt Coach

Bills.com introduced , a free tool to help you compare your best options for getting out of debt. Debt Coach offers you a no-cost comparison of the five main strategies for paying off debt, while avoiding bankruptcy. Your solution is custom tailored to your individual situation. Debt Coach analyzes your debt load, credit rating, income, and assets, all while keeping your private information private.

Summary

Take the time to understand the terms used in the debt relief industry, before you select the right option for taking care of your debt. When looking into , make sure you understand the difference between debt consolidation and payment consolidation. Either solution may be right for you, but it is important for you to understand how each option works, so you can compare the various pros and cons accurately.

Image Sources: © aboehmgarcia and © iStockphoto.com/matsekku

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24 Comments

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  • SE
    Jan, 2014
    Stacy
    Gilbert, AZ
    My husband and I applied for a home equity and were declined as we wanted to use that money to pay off my husband's credit card bills. He has 5 credit cards that total around $20K that he owes. We are trying to find the best option to pay these down without being financially crunched per paycheck to pay the minimum. We have our mortgage and 2 cards that we pay for monthly as well. What is our best option to get out of credit card debt?
    0 Votes

    • BA
      Jan, 2014
      Bill
      Stacy, there is no one-size-fits-all debt relief solution. Finding the right solution for your situation depends on your goals and your ability to pay. From the facts you shared, I recommend looking at a credit counseling program. You don't seem to be in a severe financial hardship that would merit closely examining a debt settlement program, but if you feel that you are barely holding things together, look at debt settlement.

      Try using the Bills.com Debt Coach, which can help you figure out the right solution.
      0 Votes

  • CM
    Sep, 2012
    Clare
    Saint Petersburg, FL
    How would you go about a $800.00 credit card debt along with a personal loan of $400.00 & credit has already gone down the drain due to that and as well as a small 110.00 owed at macys? I dramatically need help, just cannot catch up. Thanks
    0 Votes

    • BA
      Sep, 2012
      Bill
      It is commendable that you are dealing with your debt problems while they are relatively small, at $1310. Here are a few ideas:
      • Start by making a budget and determine if you can cut expenses or increase your income.
      • Avoid taking more loans and credit, especially online personal loans or payday loans.
      • Check out a credit counseling programs for budget help.
      0 Votes

  • JT
    Jan, 2012
    Jaleesa
    Macon, GA
    If my check is being garnished for a federal student loan, can I still attend school while their still garnishing my check?
    0 Votes

    • BA
      Jan, 2012
      Bill
      I am not aware of any restriction to your attending school due to having a federal student loan that has fallen into garnishment status. When you have a federal student loans in default, you won't get more federal student loans, but will not be barred from school.
      0 Votes

  • MJ
    Jan, 2012
    Matthew
    Lakeville, MN
    Are there consolidation programs where I can keep using one of my credit cards? I need to use a card for travel for work.
    0 Votes

    • BA
      Jan, 2012
      Bill
      Most debt settlement programs allow a client to keep one card open for emergency and travel purposes. The same goes for credit counseling debt management programs.
      0 Votes

  • NC
    Sep, 2011
    noris
    Cranston, RI
    This is valuable information. Thanks!
    2 Votes