Home Mortgage Loans

The Difference Between a Loan vs. a Service


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 better option. 

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 consolidating. 

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.