This site sees a lot of people on a daily basis.  Most are coming here to learn how to fight debt and win.  I know how they feel. Being buried under mountains of debt and watching creditors hound you every waking hour. There are few feelings worse than losing control of your finances.  While I was able to keep it together just enough to leave the creditors at bay, I still watched those damn credit card bills come to my mailbox every single month. It was like a dance I didn’t want to participate in. Unfortunately, I invited them to my house and they gladly accepted.

There are many ways to pay off debt. All require strapping down and getting serious.  When you are focusing on getting out of debt, you really should be focusing on a lifestyle change. If you don’t, you will be right back where you left off.  That’s no place to be for anyone and I wouldn’t wish it on my worst enemies.  Debt sucks, plain and simple.  Being in debt doesn’t mean your life has to end though, as there are options.  I paid mine off by focusing my time and energy finding side jobs and working my fingers to the bone to make more money than what my full-time job provided. It was a system that worked for me and it still works to this day.  Other ways include consolidating your debt and keep it more manageable. You can also get onto a debt management plan and work with your creditors to reduce what you owe.  Behind all of that and an option I least enjoy is bankruptcy. The system is there for people to use it when the going gets unmanageable and there is no way out.  Unfortunately, I think too many use it too quickly. It becomes a first choice instead of the last.  Since I don’t like this option and don’t mention it much, let’s focus on when debt consolidation is the only option.

What is Debt Consolidation?

There are quite a few debt consolidation articles here on the site, so I’m not going to beat a dead horse, but I will describe quickly what it’s all about.  Debt consolidation is technically any method which allows you to consolidate debt into one payment instead of multiple. There are a few forms of it, but typically they are consolidation loans, debt management plans, and debt settlement.  Either way you do it, the plan is to get rid of multiple debt payments and bring them into just one. It makes it easier to make the payment and stay on track of your debt payoff.  Trust me, having to pay multiple creditors is no fun and can be confusing. If you miss a payment, it could cost you big time!

Which Debt Consolidation Plan Works Best?

This question is hard to answer as each person’s situation is very different. As with one’s finances, you can’t just give a one-size-fits-all tip and hope it works.  I know better than that. I’m going to discuss the different plans to show you the differences and then it would be up to you to make the decision.  Remember, debt consolidation is a term used widely in this industry, but it encompasses many different forms. One thing you should be weary of are organizations who say they will fix your credit quick and reduce your debts to some unlikely level. There are a lot of debt management scams out there. Don’t fall for them!

Debt Consolidation Loan

This are just loans where you take the money from the loan and pay off the other debts. This is a common form of debt consolidation.  It really does work. One form is actually just using loans to pay off your credit cards. Some also use balance transfers to put all of their debts onto one card. This doesn’t work for everyone. You can get loans from banks, family members, and some online personal loan institutions. The key is to make sure you are getting a lower interest rate when you do it. There really isn’t a point to pay more in interest just to consolidate your debt.  Another big no-no is to use secured assets to pay off non-secured ones. A great example of this are home equity loans. Never, and I mean never, use a home equity loan to pay off credit card debt. You are taking something that can be charged off in bankruptcy and attaching it to something which can be taken from you if you don’t pay.  I would never tell anyone to do this, so DON’T!

Debt Management Plans

These are very popular forms of debt consolidation.  You are essentially getting on a plan where you pay one payment and that payment then gets dispersed to your creditors.  The plans are intended to reduce your payments you make each month and try to reduce your overall interest rate.  These plans are typically provided be credit counselling agencies.  You setup the plan and are told how much you will have to pay each month. This information is derived by your income versus you expenses. Many plans take upwards of 60 months (5 years) to complete, but they can be well worth it.  If you find the right agency, then you reduce your interest owed, stay on top of your debt, and your credit score might not be affected.

Debt Settlement

Settlements are meant for those who truly can’t afford to pay their entire debts. These are plans used before you need to declare bankruptcy. A debt settlement plan provides a potential way for you to walk away without having to pay the full amount you owe. These typically put a blemish on your credit score.  You have to qualify for settlements and those who do typically can’t afford to pay their bills.  Agencies which provides settlements have to work with your creditors to see if they would accept a lower amount than what you truly owe. Some will and some won’t. If all is successful and the settlement is completed, then you will be out of debt and would have paid less than the full amount.

Words of Caution

Debt consolidation is often used for all three of these plans. Unfortunately, they are different forms of consolidation. If you’re thinking about consolidating your debts, then understand what you want to accomplish and find a reputable organization to do it.  It would be wise to look for a non-profit credit counseling agency to help you, but also one that has certified agents to assist with your problems. Don’t be sold a dream, as these are not it.  If it’s too good to be true, then it probably is.

The US Department of Justice has a running list of approved credit counseling agencies. If you’re in the US, I would recommended checking out that list.  If you’re in Australia, then check out  For my readers in the UK, try out StepChange.  As I indicated, there are a number of scams relating to this service, so be very careful before you start working with an agency.


What do you think about debt consolidation?  Have you used any of these options?

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