When you’ve got more debt than you can keep up with, and you’re having a hard time making your monthly payments, a debt consolidation program can offer relief. At Debt Reduction Services, we offer a debt consolidation program to help people consolidate their debts into one lower monthly payment so that they can get back in control of their finances. Here you’ll learn all about how debt consolidation programs work, so that you can decide if enrolling in a debt consolidation program is right for you.

What is a Debt Consolidation Program?

A debt consolidation program (also called a debt management program or debt management plan) is a formal plan to restructure and pay off your debt. It’s a service that involves combining multiple loans into one single monthly payment. This typically involves a Non-profit company managing the plan and negotiating on your behalf with your creditors. These negotiations include things such as waived penalties and fees and/or a lower interest rate. You will then make a single monthly payment to the debt management company, who will distribute the funds to your creditors.

The primary goal of a debt consolidation program is to help you eliminate your debt for good and to save money in the process, after which all of your accounts would be reported as “paid-as-agreed.”

Differences between a Debt Consolidation Program and a Debt Consolidation Loan


While the two terms are often confused and interchanged, there is a significant difference between a debt consolidation program, and a debt consolidation loan (there is more to understand about how debt consolidation works). A debt consolidation loan (as opposed to a program) is exactly that, a new loan that gets used to pay off other loans or forms of debt. A debt consolidation program however is a service which negotiates fees, lower interest rates, and pays off your debts where they are.

They also differ in that a debt management program is typically done through a nonprofit credit counseling agency and includes financial education to ensure the client is empowered to make healthier decisions for financial stability long after they finish repaying their debt.

Aside from those main differences, there are also some similarities shared by debt consolidation programs and consolidation loans. These include making a single monthly payment instead of multiple payments, and likely having a lower monthly payment than you had before.

If you don’t know which is right for you, credit counseling can help. Credit counselors are certified professionals, who know these programs in and out. They will walk you through your finances answering any questions, giving advice and finally making a recommendation based on the information you provide.




Types of Debt that Can Be Consolidated Using a Debt Consolidation Program

Debt consolidation (management) programs are intended to help people with their unsecured debts (debt that is not secured by collateral, i.e. a house or a car). Credit card debt is the most commonly addressed through a debt consolidation program. However, all types of unsecured debt can be addressed including past medical bills, debt in collections, personal or payday loans, and repossessions.

Mortgages, car loans, or home equity lines of credit are all secured debts and therefore cannot be enrolled in a debt consolidation program.




Will a Debt Consolidation Program Hurt Your Credit Score?

Participating in a debt consolidation program in order to consolidate your debt does not directly affect your credit score, but a temporary note may be made on your credit report by your current creditors. This simply informs other creditors of your attempt to repay your debt and discourages them from issuing you any new accounts, lines of credit, or loans that may detract from your efforts.

Once you have completed the program, this notation is required to be removed. In certain circumstances, when a client enrolls in our debt management program and either they or their creditors’ close credit accounts, the client may see a short-term drop in credit score partly due to a change in the ratio of current balance to available credit limit. However, this dip is quickly recovered because of on-time payments which lower total debt owed.

Advantages and Disadvantages of Debt Consolidation Programs

The primary benefit of a debt consolidation program is having your debts rolled into one monthly payment instead of having multiple bills to deal with. Also, the interest rate on that one payment is typically lower than the various rates you were paying, which means you should have a lower overall payment. A lower payment means you could potentially pay off your debt faster. Furthermore, consumers with severe credit card debt typically get a better interest rate from a debt consolidation program than on a consolidation loan.

Another significant advantage to a debt consolidation program is that unlike getting a consolidation loan, a debt consolidation program does not take your credit score into account when determining your eligibility. This is because a debt consolidation program does not involve getting a new loan, so people who have been struggling to pay their current debt (and as a result may now have a bad credit score) can still qualify.

While there are significant advantages to enrolling in a debt management (consolidation) program, it’s important to note that there are typically fees involved with this service. It’s a good idea to compare fees among organizations before you pick one. When you’re struggling with debt, those dollars matter.

Getting Started with a Debt Consolidation (Management) Program

Debt consolidation programs typically start by having a discussion with a certified credit counselor to determine whether enrolling in a debt consolidation program is right for you. If you qualify for the program and decide to enroll, the program will take over the repayment of all your outstanding debts you choose to include.

Again, with a debt consolidation program, your debts will continue to exist where they are now. You’re not getting new debt or moving the debt around. You’ll make one monthly payment, and the funds will then be distributed to your various creditors. The company you choose for your debt consolidation program will then communicate with your creditors during the setup process and continue to do so as the program progresses.



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  • STOP the collection calls.