Overview

 

At Credit Mileage, it’s important to us that consumers have access to clear and conscise information on topics as important as debt consolidation, so they can make informed and educated decisions on matters that can have a major financial impact on both their bank accounts and with their credit that can last years.

 

We’ve seen first hand how people have gone through or are in the middle of a debt settlement program that has destroyed their credit for 4 years or more, which makes it impossible for them to qualify for different types of financing when major life events occur – like being able to purchase a home.

 

To be clear: some types of debt consolidation programs can obliterate your credit – worse than a bankruptcy – for years and are not the best option to getting out of debt. In fact, they’re the worst option.

 

What’s in This Article Series?

 

The below article series covers the scope of debt consolidation and compares what debt consolidation is to credit repair, because the two often get confused. In reality, they’re two completely different types of programs with entirely different objectives and purposes. 

 

‘Debt consolidation’ can mean a lot of different things and is a term used in general to describe all of them. Some of them, like a debt settlement program – will never be recommended by Credit Mileage. Others, like debt consolidation loans, can be a viable solution for getting out of debt depending on your situation.

 

Here is a brief overview of what the term ‘debt consolidation’ can refer to:

 

What is a Debt Consolidation Program?

 

A debt consolidation program is a financial strategy that involves combining multiple debts into a single, more manageable payment. This can be achieved through a debt consolidation loan or a debt management plan (DMP).

 

Debt Consolidation Loan

 

A debt consolidation loan is a type of personal loan that you use to pay off multiple debts. Instead of managing several payments, you only have one monthly payment to focus on. These loans are typically unsecured, meaning they don’t require collateral, but they may come with higher interest rates based on your creditworthiness.

 

Debt Management Plan (DMP)

 

A debt management plan is an arrangement between you and a credit counseling agency to repay your unsecured debts. The agency negotiates with your creditors to lower interest rates or waive fees, and you make a single monthly payment to the agency, which then distributes the funds to your creditors. DMPs can simplify debt repayment and help you pay off debt faster, usually within three to five years.

 

Debt Settlement Program

 

A debt settlement program differs slightly from debt consolidation. For our purposes, we’ll also refer to debt relief programs as synonomous with debt settlement programs. ‘Debt Relief’ is higher on the hierarchical scale than debt settlement as debt relief encompasses debt consolidation and debt settlement. But, again, for our pusposes, we’ll refer to debt relief programs as one and the same as debt settlement programs.

 

Rather than combining your debts, debt settlement / debt relief involves negotiating with creditors to reduce the total amount of debt you owe. You or a debt settlement company negotiate a payment that is less than the full amount of your debts. Once the settlement amount is paid, the remaining debt is forgiven. Debt settlement can significantly reduce your debt burden, but it can also have serious implications for your credit. Credit Mileage will never recommend a debt settlement program.

 

So, dig in. If debt consolidation is something you’re seriously considering doing yourself, we strongly encourage you to read through the entirety of this article series so you can be as informed as possible when making a life-changing decision like this.