Defining Debt Consolidation
This page has been developed to help demystify how debt consolidation works and explain some of the pitfalls of debt consolidation programs. Once you have reviewed the information below, you will have a better understanding of whether debt settlement or debt consolidation is right for you.
What is Debt Consolidation?
Debt consolidation is the combining of all your unsecured debt into one lower monthly payment with a lowered interest rate. Debt consolidation programs often come in the form of debt consolidation loans. There are also debt consolidation programs where, for a fee, a company will negotiate a lower payment and lower interest rate with your creditors. These programs do not result in reduced debt like debt settlement programs do.
Is Consolidation the same as Debt Settlement?
No. Debt consolidation programs reorganize debt with the assistance of a credit counselor or by borrowing a debt consolidation loan to pay off unsecured debts in full. Debt settlement programs may be able to settle your debt for less than what you owe. Unsuccessful debt consolidation programs can potentially result in increased debt because they usually require a transaction fee upon closing or through built-in interest. Debt consolidation loans do not reduce the overall amount you pay, and they oftentimes convert unsecured debt into secured debt. If you default on a loan secured by your home, it could result in the loss of your home. The typical minimum requirements for debt consolidation loans include having good credit and equity in your home. If you have overbearing debt, then you likely do not have good credit.
How Debt Consolidation Compares to Debt Settlement
Many of our clients ask us how debt consolidation programs are different from our debt settlement solutions. Here is what we tell them:
- Debt consolidation is essentially combining all your credit card debts and other unsecured debts into one lower monthly payment with a lowered interest rate.
- Debt consolidation programs often come in the form of consolidation loans. Debt settlement does not require debtors to borrow additional loans.
- Eligibility requirements for debt consolidation loan programs include the ability to pay the monthly loan payments and a good credit score.
- You must qualify for debt consolidation, and those who qualify are usually not debt settlement candidates.
- A home equity loan (i.e., a debt consolidation loan that uses your house as collateral) involves borrowing against the equity available in your property.
- Debt consolidation requires ownership of a home or a pledge of collateral.
- Defaulting on a debt consolidation loan could cause you to lose your home or the collateral you pledged.
- A transaction fee is usually required or built into the interest rates.
- You pay back the full amount of your credit card balances, plus interest.
- Payback can take as long as 10 to 20 years depending on your credit card debt or other unsecured debt balance and your ability to pay.
- You are exchanging your unsecured debts for a secured debt.
Debt Shield is not a debt consolidation company, but we can provide you with information through our free consultation that can help you decide what’s best for you.
If you are experiencing a legitimate financial hardship and your goal is to get out of debt, Debt Shield’s debt negotiation and settlement program may be for you. With our debt settlement program, we actually negotiate a settlement with your credit card companies, which, in essence can reduce the amount of unsecured debt you owe. Our flexible program can help you be debt free in 36 months by working with you to customize a plan according to what you can realistically afford.
Are you carrying excessive amounts of credit card debt, and considering debt consolidation? Are you confused by whether consolidation or settlement is the best solution to get you and your family out of debt?
Debt Shield is a debt settlement company that specializes in helping its clients settle their unsecured credit card debt. Our knowledgeable staff will gladly explain our debt settlement program, and assess your particular situation to determine if debt settlement or debt consolidation is the best solution for you.
If you have a legitimate financial hardship and a severe debt burden, you may be eligible to enroll in our debt settlement program. By participating in our program, you will benefit from working with our experienced team and settle your unsecured debt. Contact us and we’ll help you become debt free.
