Debt Consolidation VS. Debt Consolidation Loan

What really is debt consolidation? Is it a loan? Or is it just a way to combine bills in order to simplify my life and make a single payment instead of having multiple creditors calling me?

Honestly, debt relief is a topic where there is tons of consumer confusion so you are not alone. The truth is most people who are in debt have no idea how to get out of debt and even are unaware of hazy at best as to the available solutions that are out there.

The term debt consolidation gets tossed around a lot. And there are many people who think the best way to get out of a debt of to get another loan to pay off the debt they are behind on which really doesn’t solve the problem unless you have a plan.

Let’s start with the easy one – a loan. We all know what that is. The question is, honestly, who is going to loan more money to a person who’s already struggling with the debt they have. Yes you can pay off the old debt with a loan but then how will you pay off the new debt?

When looking for a debt consolidation loan you will likely find two types of lenders who may be able to help you:

  1. Legitimate- I call them legitimate because this may be a bank willing to loan you money if you have a home you can refinance or a loan received from a peer to peer lending website. In both instances these are legitimate but they are not easy to obtain. If you can’t prove you can pay these business people back they will not loan to you. That means you need a good credit score, strong income, or assets like a home they can take if you don’t repay them.


  1. Less legitimate- These are what I call more predatory lenders. Sure they have much lower standards as to who they will give money to but beware because they have huge interest rates making the loans very expensive and extremely difficult to repay. Payday loans are the biggest example. Once people become dependent on payday loans, it can become very difficult to stop and the expenses of these loans will in the end likely leave you in much worse shape than you started.


The other less understood type of debt consolidation does not involve a loan. Instead it is what this website seeks to educate people on. Debt consolidation options without a loan are called debt settlement or credit counseling.

In both solutions you are consolidating your bills into a single monthly payment but doing so without adding more debt.

Debt settlement is a negotiation process where you try and get your creditors to accept less than the full amount you owe them. Typically this is done using the helpful services of a legitimate debt settlement company.

Credit counseling is a debt consolidation process that involves working with a credit counseling agency to help you budget better and reduce your monthly payments through a program involving lower interest rates.

Got something to say?

%d bloggers like this: