The purpose of debt consolidation
is to reduce your monthly payments and establish a practical
plan to eliminate the debts. Two ways of doing this is by
either consolidating your bills into a low rate home loan,
or by using a debt consolidation management company,
unsecured by a loan.
Unsecured debt consolidation is typically used when a
loan is not an available option. If you are a homeowner with
equity and decent credit, a consolidation home loan may be a
A debt consolidation company reduces your debt by
negotiating with creditors to accept a plan that
eliminates interest and penalty payments, usually while
continuing to pay the account balances.
Debt consolidation programs cannot include certain debts
because they are non-negotiable, such as, student loans,
some store credit cards, taxes, and secured loans like a
mortgage or car loan.
Debt consolidation management companies may charge an
upfront retainer fee, or monthly fees if they collect and
distribute funds to your creditors as part of the plan for
Creditors may report to the credit bureaus that you are
using a service for debt consolidation, which can stay on
your credit report for 7 years. Creditors still have the
option of pursuing legal action against you, even if you are
using a debt consolidation program. Also, if any of the
principal balance is forgiven by creditors, it may be
treated as taxable income if it exceeds a certain amount.