Debt Consolidation Services Explained

Debt Consolidation Definition

Wikepedia Definition:  Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed rate or for the convenience of servicing only one loan.

Debt Consolidation Loan: There are two different types of debt consolidation plans available to consumers. The most common being a loan in which the consumer borrows a lump sum of money to pay off all debts. The consumer is then left with one monthly payment back to the lender.

Often these loans are secured with collateral such as a home that is paid for, property, or other items of value.

Although the interest rates on a consolidation loan may be lower than the interest rates of many Credit Cards, the risk factor associated with consolidating in this manner can be high, dependant upon the collateral used in order to get the loan.

Debt Consolidation with Credit Counseling: Not all Debt Consolidation plans are the same with Credit Counseling, however, the overall scope of the plans are similar. Debt Consolidation, mostly referred to as a Debt Management Plan, is the act of consolidating all unsecured debts into on monthly payment.

The monthly payment is made to the Credit Counseling Organization and then sent along to the creditors. Many creditors reduce interest rates, and stop late or over the limit fees for consumers that work with Credit Counseling. This helps consumers pay their debt sooner than if they were to continue making minimum monthly payments on their own.

So what is Debt Settlement?

Debt Settlement is the act of negotiating with your creditors and asking them to settle for less than what is owed on your account.

Debt Settlement is considered to be the most harmful to an individual’s credit rating and is generally considered to be a last option before bankruptcy. If you or someone you know is considering a debt settlement service, I recommend reading this article, Debt Settlement: A Costly Escape by Smartmoney on MSN Money.

I hope this helps clear up any questions you may have regarding Debt Consolidation.

If you have any questions, would like to discuss your financial challenges, or are just looking for advice, please call us at your convenience. As always, we are here to help and look forward to hearing from you.

1-877-OUT-DEBT (688-3328)

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    The benefits are numerous; borrowers no longer pay exorbitant interest rates on credit card debt. They don’t have to juggle multiple accounts and payments to different lenders. Creditors are satisfied and stop phoning. Debt consolidation works when the lender is a reputable, ethical debt consolidation company with the borrower’s best interests in mind. The promise of a lower monthly payment and a quick fix for consumer debt is so attractive to some stressed out and overspent consumers that they fall victim to debt consolidation scam artists.


    Great information! It’s important to understand the differences.

    Another danger of actual consolidation loans is the very real temptation that a large percentage of such borrowers fall victim to. After consolidating their debts into one loan, they suddenly find that their previously maxxed out credit cards are not at $0 balance. So what do about 70% of them do? Run those credit card balances back up within a year or two to the previous levels, only now they also have the consolidated loan to deal with.

    Successful consolidation MUST be accompanied by self discipline, which is usually gained through a combination of experience and education (both of which are available through most non-profit credit counseling agencies.


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