What is Debt Consolidation?
Debt consolidation gives you a loan to combine all of your unsecured debt into one place. So instead of having to make several credit card payments a month as well as paying off a medical loan, student loan debt, or any number of other unsecured lines of credit, you only have to make one monthly payment that would go towards paying the total sum of all your debt. This gives you the opportunity to have a lower interest rate, but almost certainly with higher penalties for late and non-payment. For example, one form requires that you put up collateral to secure your arrangement. This can lead to huge penalties and lost collateral if you get behind on your payments.
The main detractor with this option is that you are not immediately paying off all your debt. You’re paying off old debt by taking on new debt. This could be the right solution, but only if you can qualify for an interest rate that is much lower than your current interest rates. If you’re maxed out, or close to being maxed out on your accounts, or you have a less-than-desirable credit score, then debt consolidation programs or loans are probably not the right solution for you. In these cases, debt settlement would most likely be more viable.