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Debt Consolidation - The Broader Definition
Consolidation of debt and or repayments towards debt.
The term "Debt Consolidation" is commonly used to include options for dealing with debt beyond what is strictly debt consolidation. Further consolidation options deal with the repayment process surrounding the debt. The difference may be summarized:
Strict Debt Consolidation:
1. LOAN - Debt Consolidation
Involves a new loan that combines previous debt balances for a lower interest rate. Original creditors are paid off in full immediately and the original debt no longer exists. You still have debt, only now you owe one creditor a combined balance. Strictly speaking, a loan or debt consolidation finance is the only method to achieve consolidation of debt. Debt consolidation finance? Debt consolidation financing takes place when a new loan replaces an old. In addition to new debt consolidation financing one can occasionally use an existing credit line to absorb debt.
Broad Debt Consolidation:
1. LOAN - Debt Consolidation
2. PLAN - Payment Consolidation
3. SETTLEMENT - Payment Consolidation
The broader debt consolidation definition in use also refers to services that help through consolidation of payments. With Payment Consolidation you consolidate your repayments by making one new monthly payment. All your original creditors remain and so do your legal obligations.
The "Debt Consolidation" service provider makes ongoing repayments on your behalf in the case of a Plan. In the case of Settlement, you make payments into a fund. Eventually, IF successful the original creditors are paid off. Plan and Settlement are debt consolidations that take a few months through years. These options and debt consolidations have varying affect on your credit score.
How Does Debt Consolidation Work?
The purpose of debt consolidation is to relieve the burden of your routine debt repayments by means of a lower interest rate. How does debt consolidation work - There are three broad approaches identified above (Loan, Plan or Settlement).
Each works very differently however all approaches feature a lower interest rate as the primary motivation. Each approach has pros and cons. Not all approaches are relevant or available for every type of debt:
- Consumer Debt Consolidation (1. 2 and 3.)
- Business Debt Consolidation (1.) plus Restructuring
- Education Debt Consolidation (1.)
Debt Consolidation Options
Consumers may have each of three core debt consolidation options to choose from depending on their debt type:
What is your debt type?
Any debt consolidation plan of action must consider your type of debt. Each debt consolidation plan may not be available:
Secured Debt Consolidation:
If you wish to consolidate an existing debt that is currently secured on an asset, then your only debt consolidation option is a Loan.
Unsecured Debt Consolidation:
If you have unsecured debts, like credit card debt, store card debt, payday or signature loans and other types of unsecured debt then you potentially have all three debt consolidation options available.
Debt Consolidation is a process (not a service). Most debt consolidation options or alternatives for debts consolidation can be actioned by yourself and do not require the services of the debts consolidation industry.
Debt Consolidation Scams
There are bad debt consolidation operators in the business. Bad debt consolidation scams exist where some organizations charge high and exploitative fees, misrepresent themselves or their products and even steal your money or identity. Caution is required to avoid bad debt consolidation operators when seeking outside service help. Credit repair debt consolidation is one such scam, that is, if you find a company marketing a "credit repair debt consolidation service" you should steer clear.
We help you avoid these debt consolidation bad pitfalls. The greatest challenge comes in getting a personal debt consolidation solution to work effectively. In order to work, a personal debt consolidation solution must be done in concert with budgeting and personal financial discipline.
Personal Debt Consolidation
About debt consolidation - one is unlikely to achieve success through any approach if they cannot control spending, set a firm budget and demonstrate ongoing commitment. Whilst some people perform strategic money management debt consolidation using a loan, many people approach the topic of debt consolidation because of financial difficulties. Whilst you can find debt consolidation options to help save money, a deeper review of finances is often necessary. This site considers all your options for consumer debt consolidation help. Free debt consolidation advice and online debt consolidation information to help you navigate the topic. We identify debt consolidators and the best debt consolidation providers. For an overview of what is debt consolidation and a debt consolidation comparison see our article: Debt and Consolidation.