Are Debt Consolidation Services for You?

Debt consolidation services exist to work with people who get into trouble with too much debt. These companies consolidate their unsecured debts and work out more favorable payment programs.

A debt consolidation company will condense all your unsecured monthly bills into one bill at lower monthly payments. You can consolidate your debts through a debt management program or through a debt consolidation loan. Both a debt management program and a debt consolidation loan can help you easily make your payments without struggling.

Types of Debt Consolidation Services

The various options available to consolidate consumers debts have made the debt consolidation term quite confusing. There are debt management program or plan, debt consolidation loans and debt settlement.

A debt management plan is a debt repayment program offered by consumer credit counseling services. If you enroll in such a program the company will call your creditors to negotiate repayment terms, reduce interest rates and it may even eliminate late fees. You will then send the company one payment every month and they distribute the payments to your creditors.

Most of debt consolidation loans are home equity loans, which is the equity built up in your home loan. They use it to repay all of your unsecured debts. These loans, which usually come with high application fees, convert all of your current unsecured debts into on secured debt -- backed by your home.

Pros and Cons of Debt Consolidation Services

Depending on whether you decide to get a consolidation loan, or whether you decide to go to a credit counseling service, there are different pros and cons to credit consolidation.

If you decide to consolidate with a bank loan, you will first need to qualify for some form of loan. If you get a second mortgage or a home equity line of credit, you will be turning your unsecured debt into a debt secured against your home -- if you cannot make your payments, your house can be taken.

A bank loan also means a new debt. As not all of your debt going away you have not always saved any money by doing this. However, consolidating with a bank loan does give you some peace of mind, as it will eliminate creditor calls and improve your credit score.

Consolidation through a credit counseling service can be a longer process. Here, rather than shifting your debt, you shift how you are paying that debt. One payment monthly can be a lot easier to keep track of than many. Credit counseling services will often help you learn to handle your finances better, as well as help you negotiate for lower rates with your credit.

The cons of debt consolidation through a debt management program is that while you are on the program, you cannot open any new accounts. Also, your credit score may temporarily go down. Some lenders may choose not to work with your credit counseling service, which can be inconvenient.

So, before you a debt consolidation service, do your research and be aware of the pros and cons of any program or service before you apply. Some factors may not affect you at all, whereas others may be very important.

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