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, a loan you can borrow and use to pay back your debts. When you take out a debt consolidation loan using your home as collateral, that is known as a home equity loan. There are also debt consolidation programs where, for a fee, a company will negotiate a lower payment and lower interest rate with your creditors.
Is Debt Consolidation Right for Me?
The typical minimum requirements for debt consolidation loans include having good credit and, in the case of home equity loans, equity in your home. If you have overwhelming debt, then you likely do not have good credit. In that case, you may want to see if you qualify for debt settlement.
How Debt Consolidation Compares to Debt Settlement
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.
Here are some of the differences between debt consolidation and debt settlement:
| Debt Consolidation | Debt Settlement |
|---|---|
| Debt consolidation involves consolidating your debts into one large debt | Debt settlement involves negotiating with your creditors to settle your debt for less than your entire balance owed in consideration of a legitimate financial hardship |
| Debt consolidation typically combines all unsecured debts into one lower monthly payment with a lower interest rate | Debt settlement requires one monthly set-aside payment that accrues in a savings account so a settlement can be offered to your creditors for less than you owe |
| Debt consolidation often comes in the form of consolidation loans and may require a good credit score to be eligible to borrow the loan | Debt settlement does not require you to borrow additional loans, nor does it require good credit. Debt settlement can, however, have a negative effect on credit |
| Debt consolidation may require ownership of a home or a pledge of collateral | Debt settlement does not require home ownership or a pledge of collateral |
| Defaulting on a home equity loan (i.e., a debt consolidation loan that uses your house as collateral) could cause you to lose your home | There is no collateral required in debt settlement |
| Payback on a home equity line of credit or loan can take as long as 10-30 years, depending on the type and size of the loan | Typically, consumers who complete a debt settlement program, do so in less time when compared to consumers who take out additional loans |
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.
Debt Shield's Professional Alternative
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. Our debt settlement program is designed to negotiate settlements with your credit card companies for less than the outstanding balance of unsecured debt you owe. Our flexible program may be able to help you settle your enrolled debt 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 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. Contact us to see if we can help you become debt free.
